1988 - The Beginning
1988 - The Beginning
February 6, 1988.
Matthias had proven his capabilities.
He had recruited reliable people and sent them to Greenwich Connecticut, and the funds had also grown to ten million dollars as he had said.
And then that was leveraged again into gold and deposited into a custody account at the Union Banks of Switzerland.
The assets currently in the account are 132,159 ounces (4,110.6 kg) of gold.
I don't know how the leverage was arranged, but the terms were roughly a 16% margin requirement with a fixed interest rate of 0.8%.
With ten million dollars, you can borrow about sixty million dollars worth of gold.
Conditions I could never achieve if I tried myself.
Even at best, it would have been a 30% margin requirement with an interest rate in the 2-3% range.
"Nice to meet you. David Sanson. Advisor-nim."
"Arthur Kim. I'll be in your care. This is my secretary, Ara Berry."
"Hello."
"Ah, hello. Uh-... Have you perhaps had something upsetting happen?"
"Her face just looks like that normally. You'll get used to it as you see her more."
"Ah, is that so. Haha, I was wondering if the office displeased you."
I shook hands and greeted David Sanson, the CEO of the Execution Office.
Ara nodded her head like a haughty cat.
Not quite arrogant, but a suitably polite degree of bowing her head?
Seeing even this appearance look cute, I guess I've really fallen for her.
To the point where I'm worried if I'm getting too deeply attached.
Maybe I need to manage my own mental state a bit.
"Have you fully understood the precautions?"
"Yes. I heard you intend to operate as a complete Execution Office."
"That's more important than profits, so you must emphasize it clearly to the employees several times."
"Don't worry."
The Greenwich office must be a complete Execution.
If I establish a proper management firm in the US just to raise the yield rate a bit more, it becomes a big problem.
Because the moment an office within the US independently judges stocks, sets prices, or trades products, it's treated as a US fund, not an offshore fund.
That's why I'm registered as an auditor and advisor, not the CEO.
Even the company name was decided as 'EXE'.
"Have all the NDA(Non-Disclosure Agreements) been completed?"
"Of course."
"In return, I'll guarantee that level of profits. You didn't come to Greenwich for nothing, right?"
"Huh-. I gathered only people with tight lips, so please don't worry too much."
Greenwich is the place in the US where hedge fund offices are most concentrated.
Within an hour's distance from Manhattan, with no personal income tax, and a good living environment.
For the company, there isn't much to save on, but for the employees receiving compensation, it's the best location.
A region where high-income finance people inevitably flock.
Beee-. Zzzzt-. Zzzzt-.
Just as we were exchanging our first greetings, the telex installed in the office began making sounds and moving.
An order sent by Matthias from the Bahamas.
The structure is: send an opinion document from my nearby office to the Bahamas, then the investment committee of the Bahamas fund K&M;(Kim & Matthias) holds a meeting and sends decisions and instructions to EXE.
Of course, the investment committee and directors are just rubber-stamping formalities, but if those meeting records don't exist, there will be big trouble later, so that sequence must absolutely be followed.
Therefore, constant management of the Bahamas office was essential.
Because the lawyers had to produce meeting records every time.
Tzeeek-.
I tore off the telex paper to check the contents.
Proper documents.
As expected, Matthias is solid when it comes to handling things.
"The first task. Investigate this year's climate, precipitation in the central region, and probability of abnormal weather."
"Abnormal weather?"
David and Ara tilted their heads in confusion.
A natural reaction.
I haven't told anyone about what I intend to invest in.
Not even Matthias.
"Probably, even if you investigate, there won't be any particular abnormalities."
At least until March, even the meteorological agency wouldn't have detected signs.
The expected precipitation rate was around 80% or something?
I don't remember exactly.
"But why......?"
"So make it."
"Huh?"
"Even trivial things are fine, find signs of El Niño and bring them. Things like drought possibilities."
This isn't content listed on the order.
So, the basis for drought will become something EXE coincidentally discovered during research.
David tilted his head briefly, then soon opened his mouth with a peculiar smile.
"You need a research report containing grounds for a grain long position that the stupid meteorological agency failed to discover."
"That's right."
"I'll package it with the best logic."
"Good attitude. The order says one month, but I'd like to receive the first report within a week. Possible?"
"Internal use within a week, refined report finished in about a month? Of course, both need to be stored."
"Excellent. I like it."
In an Execution Office that just needs to move as instructed, there's no need to harbor doubts.
Just follow as the employer wants and take the money.
And if you understand perfectly on top of that, even better.
Looks like Matthias recruited proper people.
In terms of security, I still don't know well, but in terms of capability, seems like a passing grade.
"Then I'll go to the bank."
"Take care!"
"Work hard. Let's go, Ara."
"Yes."
I went outside the office and started the car.
I want to hire a driver quickly too.
"I'll get my license quickly."
"Even if you do, I won't hand over the steering wheel."
"Huh?! Why?"
"I think I mentioned before that I'd hire a driver."
I have no intention of letting Ara drive.
Getting a license doesn't make you a veteran immediately.
It's better to just comfortably hire a driver with tight lips.
But first, the car I ordered needs to arrive.
Vroooom-!
Ignoring Ara who seemed inwardly disappointed, I stepped on the accelerator.
The Swiss account was created by Matthias, so in the US, I had to move.
The destination was investment banks to open K&M;'s accounts.
Among them, the first place to go was Salomon Brothers.
The headquarters of alpha-male traders, a bank that strives to devour its clients.
"Welcome. What business brings you here?"
The person greeting us in the lobby was a female employee at the reception desk.
"An appointment is scheduled. With Jake from the Institutional Sales department, I heard."
"Jake from IS. Who should I say is here?"
"Fund manager of K&M;, Arthur Kim."
"K&M;, Arthur Kim. Confirmed. Would you please wait seated?"
"Sure."
The employee looked at Ara with suspicious glances even during the conversation and picked up the phone.
"Is there something wrong with me?"
"No. Probably just because you look young to be here. Same for me, but especially you."
Salomon Brothers is an incredibly macho bank.
A petite female who just graduated high school, moreover to those who can't distinguish the age of Asians, how must Ara look?
It might be fortunate they didn't call the police.
Maybe it would have been better if a lawyer was beside us.
"K&M;?"
Not long after, a male voice was heard.
Ara and I turned our heads following the voice.
There, one male stood with his hands in his pockets.
"Jake?"
"Mickey. Working with Jake in the Sales department."
What's this.
The appointment was with Jake.
Maybe client hijacking?
"Nice to meet you. Arthur Kim."
"Should we sit and talk?"
Mickey spread his hand pointing to the chairs.
Lobby chairs.
'This bastard?'
Funny guy, this.
As expected of Salomon.
Clearly looks like a rookie doing as he was told and taught.
Probably not hijacking.
The guy named Jake dumped the task on a junior.
"Sure."
I sat down with a hollow laugh.
I have no complaints with this young friend Mickey.
What would that clumsy friend know.
I just want to see the face of the guy Jake I originally planned to meet.
Ara, perhaps sensing my mood, quietly kept her mouth shut.
"Trying to look up K&M;'s research, I couldn't find it at all."
"Well, it hasn't been around long."
"Uh-. From what I heard beforehand, it's a new account opening, but you intend to contract a full package including credit line, ISDA, PSA, stock loan, margin loan. Correct?"
"Correct."
"......."
Mickey scratched his head.
Every contract a large hedge fund can make.
Those contracts hit the capital scale lines demanded by the bank for small-scale funds.
Sitting us here in the lobby and talking like this is probably because they're convinced we're just some ordinary office.
Ara and I are excessively young, so it's understandable they might make that misconception.
But even when I met with the CEO position of a family office, we talked in a conference room first.
As expected of Salomon.
Like the best, no, second-best troublemakers of this era.
The first is Drexel Burnham Lambert.
As long as the king of LBO exists, no matter how much it's the headquarters of alpha-male traders, it can't be first.
"Did you bring an investment proposal?"
"No."
"Then what is your capital scale approximately?"
"Ara."
At my words, Ara pulled out a binder from the briefcase.
Documents about 200 pages.
From fund existence proof documents to LPA, GP resolution, W-8, etc.
A binder outlining K&M;.
"Wow-. Your preparedness is thorough."
Mickey spoke with half admiration, half sneer mixed.
"Turn to page 100."
"Where, page 100......"
And his eyes widened enormously when he checked page 100 after opening the binder.
"Huh?!"
───────────
Asset : Gold
Custody : Swiss National Bank (SNB)
Storage Form : Allocated
Total Holdings : 132,154 ozt(troy ounces) / 4,110.604 kg (approx. 4.11 tons)
Purity Standard : 0.995+
Storage Location : Zurich Central Bank vault - detailed code confidential
───────────
The details on page 100.
Probably not just one or two things he wants to ask.
But among them, the most eye-catching would be the Zurich Central Bank vault.
Even if gold is physical, it's traded with custody certificates, not moving the actual physical item.
Even if so, would a country's central bank just lend gold to anyone?
It was possible because Switzerland is open to gold lending and addition to Matthias's family.
"Thinking about selling the gold to prepare cash. Without a contract, there's no way to sell, right?"
"That-. Haha."
Mickey sweated cold sweat and laughed awkwardly.
Sixty million dollars is by no means small money, but also not a tremendous amount for an institution's AUM.
But if it's gold from the Swiss Central Bank, the story changes.
"Sorry. Shall we continue the conversation in a conference room? I'll serve you a nice cup of coffee."
Feeling fucked up?
Assigning a dedicated team would be insufficient, yet he stood us in the lobby.
Moreover, if this fact gets caught, it's not strange if the risk management and audit teams jump out and cause a commotion.
A quite severe pressure for a rookie banker.
All because he was taught work incorrectly by his seniors.
"Let's finish with two decent cups of coffee."
I want to make more fuss here.
But I also came because I need Salomon.
Unnecessary provocation would only create bad situations for both sides.
Anyway, let's end it with just having brought a bit more negotiating power.
"Thank you! Let's go up!"
Mickey quickly pulled his hands from his pockets and began politely guiding us, like a Butler leading the homeowner.
"How about this? A product our Sales department confidently recommends."
While lawyers from both sides were reading the contracts, Mickey extended two sheets of documents.
[Mortgage MBS Tranche]
[1988 1st Quarter CATS]
A look clearly showing urgency.
Seems they're being chewed out fiercely from above.
I anticipated it.
That's why I targeted Salomon first.
"Not a bad product."
I spoke while reading the product introduction.
Certainly not a malicious product.
From the perspective of insurance companies or pension funds.
From my perspective, it's the worst product.
"Not just 'not bad.' Our evaluation is that real estate and bonds have just entered a upward phase."
"As rumored."
"Rumor?"
"Every department at Salomon follows as the Bond department orders."
"......."
"The Bond department is pressuring to dump inventory? Sorry, but I have no intention of filling the Sales department's quota."
Salomon is strong in bonds.
Especially US Treasuries, they hold tightly.
That means, the political balance within the company Salomon is completely collapsed.
"Ahem. We respect our own domains."
"Must have accumulated quite some dissatisfaction, right?"
"......I wonder if there's even such a thing as secrets in this damn Wall Street."
Mickey deeply sighed out.
In a company with a macho culture already,ironically the department with the strongest influence is the most macho.
Not just a level of being strong.
It's routine to ignore, mock, and torment people from other departments.
Almost military level.
"How about, we can help each other."
"Huh?"
"Can we talk quietly separately?"
"Sure."
Mickey tilted his head puzzled but guided us to a small conference room in the adjacent room.
Even excluding the lawyers and legal team.
"Let me make a proposal."
"A proposal?"
"We plan to purchase US Treasuries later. Not futures, physical."
"US Treasuries? That's whatever......"
"Target leverage is 30 times. Haircut around 3%."
"30?!"
"Of course, not these kinds of products from the Bond department."
I said while tapping the documents.
CATS are strip bonds where interest is stripped from US Treasuries.
Zero-coupon US Treasuries much cheaper than the amount received at maturity, in exchange for 0 interest.
If entered without leverage, not a bad bond, but.
"Prepare baskets split by issuance series for off-the-run 30-year bonds with remaining maturity over 25 years."
"Off-the-run?"
"Yes. On-the-run would have heavy scrutiny from the Bond department."
"......Are you telling me to stab the company in the back?"
"No. Only the Bond department gets stabbed in the back. From bond purchase fees to repo spreads, everything will be eaten through Sales, right? The Bond department's yield rate will decrease, but your incentives will increase. Quite a lot."
Mickey's Adam's apple gulped and moved.
Not a trader, but seems he understood what I'm saying itself.
Ara won't understand anything, so I'll need to explain on the way home.
"The number, quantity of the baskets?"
"The entry timing isn't fixed yet. Shall we arrange for at least a $1 billion line?"
"At least $1 billion?!"
"That much should be enough to slap the Bond department and pocket incentives, right?"
"Are you really entering with US Treasuries?"
"What benefit do I have deceiving Mickey? Would the contract fall apart if I don't sweet-talk like this?"
"That's, no."
"So Mickey, just secretly update the 30 times repo and baskets behind the Bond department. So you can fuck them over anytime."
He wiped sweat from his forehead and exhaled a