GS top distressed debt trader quits; felt underpaid

Discussion in 'Wall St. News' started by makloda, Aug 22, 2007.

  1. Why $70 Million Wasn't Enough
    With Wall Street Rules Changing, A Goldman Star Felt Underpaid

    Mark McGoldrick earned about $70 million in pay last year -- nearly $200,000 a day -- placing bets using Goldman Sachs Group Inc.'s money. He was one of Goldman's highest-paid employees.

    Turns out it wasn't enough.

    Internally dubbed "Goldfinger" for running one of Goldman's most-profitable units, Mr. McGoldrick delivered a big chunk of the firm's 2006 profits, people familiar with the matter say. He co-founded and built the firm's secretive "special-situations group," Goldman's elite but opaque money-making machine that buys and sells eclectic assets including British power plants, Japanese golf courses and Thai auto loans.

    But the 48-year-old Mr. McGoldrick decided he was working too hard, on a certain path to burnout.

    "Years of constant travel around the world took a personal toll on Mark, even though the business was exciting," says Lance West, a former Goldman partner who worked for Mr. McGoldrick. "Finally it was about the money -- but it wasn't just about the money."

    Mr. McGoldrick and some of the partners in his unit griped that they weren't being rewarded as well as counterparts at hedge funds and private-equity firms. Though highly paid, his team was "under-compensated," Mr. McGoldrick complained to Goldman colleagues. He groused about being shut out of investments because of potential conflicts inside Goldman. Then he quit.

    Now, he is planning a hedge fund where he believes he can make more money with fewer restrictions. The recent market tumult has Mr. McGoldrick "chomping at the bit" to get back into the fray, according to a person familiar with the situation. He has told colleagues that the current credit crunch -- which has battered bond and stock markets -- presents new opportunities. Already, at least one group of investors is eager for him to open his own asset-management shop: some of his former partners at Goldman.

    The star investor's rise and departure speaks volumes about how the money is being made these days. For years, Goldman has been the securities industry's gold standard: The investment bank has been the world's most profitable, attracting talented bankers and traders who want to strike it rich. Mr. McGoldrick's success illustrates Goldman's willingness to risk its own capital to make unusual investments.

    Goldman's shares have fallen 22.6% over the past two months amid an increasingly volatile stock market and worries over the firm's risk-taking trades. Three of the hedge funds it manages have seen the net value of their assets fall by several billion dollars so far this year. The performance of Goldman's special-situations group will go a long way toward determining how well the firm weathers the current storm.

    The special-situations group manages more assets, and operates differently, than the Goldman hedge funds hit in the recent market decline. Those funds are essentially "quant" funds, which make thousands of trades daily based on computer-driven models. On the other hand, the fund formerly run by Mr. McGoldrick consists largely of illiquid, often distressed assets, such as real estate or corporate debt, investments that may not pay off for a few years.

    Mr. McGoldrick's departure shows that even top Wall Street investment banks no longer have a lock on key employees. A few top traders at private-equity firms and hedge funds earn as much as $100 million a year, with more autonomy.

    His departure was so sensitive inside Goldman that when Mr. McGoldrick resigned in January, the firm didn't send out an internal memo. Instead, some executives hinted that Mr. McGoldrick suffered a medical crisis, partly to head off an exodus by Goldman's other star employees, according to people familiar with the situation. "Mark was such a legendary figure here that there was a lot of chatter when he left," says a Goldman executive. "People were curious or concerned."

    In recent months, friends and colleagues of Mr. McGoldrick have been calling to ask if he was, in the words of one person, "wheeled out" of the firm. "The way the firm is spinning my disappearance is nonsense," Mr. McGoldrick responded, these people say. A Goldman spokesman says Mr. McGoldrick left for "personal reasons."

    Mr. McGoldrick, who grew up near Boston, joined Goldman from a Canadian bank a decade ago. He and the Goldman partner who recruited him, Pete Briger, traded "distressed" mortgage debt. Amid the 1997-98 Asian financial crisis, the men moved into a small Tokyo apartment. Goldman provided $1 billion to buy up bad debt and other troubled investments.

    They bought bankruptcy claims and bad mortgages throughout Japan. After a sharp devaluation of the Thai baht in 1997, they, in a joint venture with General Electric Co., bought 400,000 auto loans in Thailand at 45% of face value, for $500 million. Mr. McGoldrick hired 1,000 employees to do tasks including collecting payments and repossessing cars. The bet paid off: The investment doubled in less than two years.

    The pair placed another big bet on soju, an alcoholic drink distilled from rice that is South Korea's most popular spirit. The Goldman unit bought debt of that country's largest liquor maker, Jinro Group. With a $200 million position bought from 1998 to 2002, Mr. McGoldrick became an activist creditor and pushed to overthrow Jinro's management through the Korean courts because Jinro had defaulted on its reorganization plan.

    Sparks flew. Some Korean press reports portrayed Goldman as a foreign aggressor out to steal South Korea's national drink. Mr. McGoldrick's team received nine-millimeter shells in the mail with death threats. When Goldman suffered setbacks in the courts, he became more aggressive, says one person familiar with the situation. Four years later, Goldman's reorganization plan won, overthrowing Jinro's management. Goldman then sold its debt, bought at a big discount and now with accrued interest, for $1 billion, five times its investment.

    In 2000, Mr. McGoldrick moved to Hong Kong with his wife and three children. At work, he thrived, bragging to subordinates in Hong Kong about the firm's "DNA" and saying it had a huge "risk appetite," according to a person familiar with the situation. "We have a hunting license to invest any amount anywhere in the world," he told them, this person says.

    After the stock-market bubble burst that year, Goldman made a bigger push into proprietary trading throughout the firm. Mr. McGoldrick's group, with low costs and 150 employees, could deliver solid profit margins.

    After the 2001 terrorist attacks, the special-situations group became a buyer of aircraft on the cheap, from 737s to Airbus jetliners. Mr. McGoldrick negotiated with travel operators falling behind on their aircraft leases, banks dumping aircraft collateral of weak borrowers, and owners who left their jets parked in the desert. As the sector recovered, Mr. McGoldrick sold the planes, earning several hundred million dollars for Goldman.

    In 2002, when Mr. Briger joined Fortress Investment Group LLC, an alternative-asset manager, Mr. McGoldrick began frequently working 21-hour days and traveling three weeks each month. He typically would land in Hong Kong at 11 p.m., and go home to work. It would be noon in New York, so he'd participate in three hours of conference calls to review the credit and asset value of U.S. partnerships under consideration. At 3 a.m. Hong Kong time, he'd go to bed until 6 a.m., when he'd rise to review the unit's Asian investments and markets.

    By lunchtime, he would turn his attention to his 50-member staff in Europe. He then would be back on the phone with New York to review risks of the latest daily deal cycle.

    To reduce his schedule, Mr. McGoldrick switched time zones by moving with his family to London a few years ago. He began a push into alternative-energy investments long before the sector got hot. His group bought Horizon Wind Energy, based in Houston, for about $150 million, infused $800 million to build up its wind-turbine pipeline and recently sold it for $2.1 billion to a Portuguese power company.

  2. I tip my hat to this man, he was definitely under paid, over worked and made the right move.

    Man I wonder how many Goldie alumni's are now running their own funds

    AQR, TPG, Eton etc...
  3. I agree. This guy likely won't have trouble raising capital for his own venture.

  4. great article
  5. The strategies he was good at though relied on alot of GS clout and endless capital, he wasn`t underpaid, the returns were allright (only going from the ones enumerated in the article) but the cap ex involved in running his operations needs to be considered, GS footed that bill.

    I hope he is employing less capital entensive strategies for his own fund, otherwise, after a couple years he will realize how good he had it at GS.

    A lot of that was on him, he could have managed his work hours and timelines much more efficiently, its called organization and delegation.
  6. nkhoi


    bottom line 'invest in market is when there is blood on the streets'
  7. Daal


    apparently the egos of the ceo and the board are too weak to accept paying more. they are always the ones who 2/20 people, now some employee wants to 2/20 them and hes getting more money than them?lets get rid of him and lose billions of profit instead, no one can 2/20 GS
  8. 70 mill puts him in the top .00001 (or more) of the population and allows him to quit now and have an EXTREMELY 'fabulous' rest of life in retirement.
  9. gnome


    More difficult now that the Gummint and Fed have adopted the policy of "let no wound bleed, no matter how deep..."
  10. Mercor


    I hope Obama and the Dem congress doesn't get wind of this guy.....they will ask for windfall taxes
    #10     May 25, 2008