Money manager AllianceBernstein let four equity traders go in New York last Tuesday, in a move industry observers say is unprecedented on the buyside, but standard operating procedure in the brokerage world.
Trading pros say such a firing became inevitable once money managers began a hiring spree of former sellside executives several years ago. On the sellside, it is common practice for new management to change personnel when it takes over. In such cases, the new heads of a sellside desk often bring in their own team of traders.
AllianceBernstein’s two top trading executives are both former sellsiders. Patrick Whalen, a former Lehman Brothers and Morgan Stanley pro, heads global trading, and Robert Karofsky, a former Deutsche Bank and Morgan Stanley exec, runs global equity trading. Whalen has headed trading since May 2009, and Karofsky joined in March of this year.
It is unclear whether the pink slips were a result of declining trading volumes and assets or simply a changing of the guard. AllianceBernstein declined to comment. As of June 30, AllianceBernstein managed $461 billion in assets.
In recent years, the buyside has not been immune from downsizing in trading, as technology has allowed desks to do more with less. But several sources said they had never before seen a buyside trading desk take a divot that deep in one shot, losing four traders–nearly half the traders there. Total, the firm now has a staff of 10 involved in the trading function, down from 14.
One observer said that even in the aftermath of the financial crisis, when assets under management were under siege, the buyside refrained from widespread layoffs in trading. “This is unusual, no matter what the reason,” said one industry veteran.
The traders relieved of their duties were Dave Christopher, Lauren Knight, Luke Lyons and Dave Steigerwald. Christopher, who spent about 20 years at AllianceBernstein, traded energy, chemicals and health care. Knight, a vice president, joined the firm in 2000 from Syracuse University, according to LinkedIn. Lyons, a former prop trader who ran high-frequency trading at Diamondback Capital, joined as global head of quantitative program trading in 2009. Steigerwald joined in May 2008 as a sector trader, after spending most of his career at Deutsche Bank and its predecessor BT Alex. Brown.
Earlier this year, Greg Rosenberg was also given his walking papers. Rosenberg, like Lyons and Steigerwald, was hired by a former Deutsche associate, Keith Gertsen, who ran trading at AllianceBernstein before Whalen. Gertsen was AB’s first foray into having a sellsider run the show. He headed trading from 2006 to 2009. During his tenure, Gertsen introduced a quantitative group to measure trading costs, called Quant Lab. Apparently AllianceBernstein liked what it saw, because when Gertsen left to head trading at Viking Global Investors, it hired another sellside exec in Whalen.
Rosenberg was the interim head of trading at AllianceBernstein before Whalen was hired in 2009. He had worked with Karofsky at Deutsche.
Industry sentiment is that there will be new hires to replace the departed traders–but for different reasons. One school of thought is that it is hard to imagine a desk not being impacted with that many traders let go. Four traders remain, plus Eric Shanker, a Deutsche veteran who trades and is Karofsky’s right-hand man. So when business picks up, it could be a difficult task to handle the work if the desk is short-staffed. Also, Whalen has discussed getting away from sector trading at the firm, according to one knowledgeable source. His view is that buyside traders should be more like sales traders in how they service their portfolio managers, relying on the sellside for market insight from its specialists or sector traders.
The cutbacks only affected the New York desk. Roughly a dozen traders at AllianceBernstein offices in Sydney, Japan, Hong Kong and London were untouched by layoffs.
Whalen is joined by a large list of sellside heavyweights who have moved to the buyside in recent years–mostly from the bulge bracket. Several have been chronicled in Traders Magazine, including Gertsen at AllianceBernstein, Ray Tierney at Morgan Stanley Investment Management and Rob Arancio at Neuberger Berman. (Whalen was also featured in a cover story when he ran trading at Lehman.) Both Gertsen and Tierney have since moved back to their sellside roots–Gertsen to Citi and Tierney to Bloomberg Tradebook. Other sellside execs who have gone to large buyside shops include Brian Conroy at Fidelity Investments and Michael Gitlin at T. Rowe Price. Conroy moved to Fidelity Capital Markets this year.
