WHO NEEDS A BACK OFFICE?

28 June 2007: DJIA 13,422

So the Fed took two days to decide to do nothing – pretty much sums them up. At first I thought that no change in the Fed Funds rate was bad, then good, then bad, so after all that I stopped worrying and just got on with real life. Stanley says everyone else is equally confused. It’s a great market. If in doubt, ignore fundamentals and just buy stock. Oil is moving up nicely too. Ideally we need those grease monkeys at OPEC to turn the taps down a little, just to squeeze supply. Bad news for a few people, perhaps, but it would make a hell of a difference to my performance numbers. If it goes the right way, I’m looking at a very serious compensation shot at year-end.

At home today. I live pretty close to the office, in the Carlton House building. The firm rented the apartment for me when I moved up from NYC. It’s neat, although I don’t spend a lot of time there. But I’ve had the maid clean up specially for today, as Martina Brimm is paying a visit. Ms Brimm is a ball-buster of the first order and I am lucky to have her as my lawyer. She doesn’t come cheap and she doesn’t come to the office. What we discuss needs to be taken offsite and offline.

Basically, Brimm and I have to solve a problem. My partners have raised some totally invalid concerns about the way I run the desks. They say that there’s no structure, no controls, no process – all the stuff we wanted to get away from when we quit our jobs to set up this firm. Freedom to act was meant to be part of the deal. You fancy selling some Thai Baht? Hey, Larry, go right ahead. Shorting Bear? Be my guest.

Yet we already have more committees than tropical fish, not to mention that compliance guy whose name temporarily escapes me. What do they want? Bottom line, I’ve delivered for this firm, and that needs to be recognized. All the rest is just so much flute music. Clients don’t care whether we have a hundred committees or none, as long we give them back more money than they started with.

Larry, they say, be reasonable. We have to have some structure. Problem is, I think we already have too much structure. At huge expense, we had a consultant come in and tell us what to do about administration and all the back-office plumbing. As he collected his fees, he told us that we needed independent this, that and the other, all of which eat into the fees pretty dramatically. On top of all the horrendous charges I pay to the prime brokers, I also have to give up more skin to an army of administrators, custodians, valuation agents, revaluation agents, auditors and, on a very regular basis, more consultants.

So, we pay all these people, and what do they do for us? For one, tell us what we can and can’t do. Sorry, Larry, but that trade can’t be settled, because…blah, blah, blah. Who is the money manager here? What’s worse, my partners seem to like this. They like being pussy-whipped by a bunch of guys who are proud to call themselves administrators. I mean, honestly: how could you go home to your folks and say, “Hey, Mom, Pop, I just got a new job as an administrator”? That’s right up there with being an astronaut or a brain surgeon.

That’s where we are. The partners want layers of bureaucracy that will make our firm as turgid and flabby as the Wall Street firms and fat-assed New England money managers we are trying to beat. I am holding out for a bit of flair, entrepreneurship and the general American can-do attitude. If I’d wanted regulation, I’d have moved the operation to France, where you can’t visit the bathroom without triplicated approval from some government fonctionnaire. Funny how entrepreneur is a French word.

Once – only once – they sent a guy from our custodian to see me. He was dressed neck-to-toe in Brooks Brothers. Could’ve come straight out of the store window, and had about as much intelligence. Wanted to know what the hot issues were and what kept me awake at night. Where do they get these guys from? For this, I am paying multiple basis points? Just don’t lose my stock, I told him. That’s what keeps me awake at night. Do you think you could do that?

Anyway, back to Brimm. She could have had a starring role in The Addams Family. The way I figure it, if she scares me this much, and I’m paying her, what will she do to the people I really want scared? As always, she has a plan. It involves being given more equity in the firm, or leaving – or threatening to leave, at the very least. From where I’m sitting, there are a whole bunch of reasons why this isn’t going to fly, but I am not Martina Brimm, and she exudes nothing but total confidence. Plan B is an alien concept to her.

I am not to worry, she says. She pushes a folder across the coffee table between us. “It’s all in here. I didn’t want to e-mail it. Too sensitive.” Holy crap! Do I want to know what’s in the folder? “What’s in the folder?” I ask, nodding at it without looking at it.

“Your insurance.” Beat. “And my bill. Good luck, Larry.”

Ms Brimm sees herself out. I check Bloomberg, briefly look at the BlackBerry – a high-priority mail from Haresh, signed ‘Chief Compliance Officer’, still on about some client trades – then settle down with the folder.