Four months ago we launched The Big Idea, our occasional feature speculating about the future of finance, with a guess that Goldman might Sachs consider spinning off it’s proprietary trading group. There had been word on the street that the big pay packages received by many of the top names in private equity and at hedge funds had some within Goldman proprietary trading group feeling underappreciated. “We're hearing from investment bankers who have talked to people inside the firm that Goldman could face pressure to spin-off its trading and hedge fund business in order to realize the value of the business before its guys start to defect or strike out on their own,” we wrote.
At the time, the Big Idea made something of a splash across the financial media and was heavily discussed in the financial community. But Goldman, then trading at it’s fifty-two week high, didn’t seem very keen on the idea. But just because Goldman wasn’t willing to talk spin-off didn’t mean that some of the top guys inside of Goldman weren’t plotting their own private spin-off.
This weekend’s Wall Street Journal details the rise and departure of Mark McGoldrick, the 48-year-old founder and former head of the “Special Situations” group at Goldman. Last year, McGoldrick got a $70 million bonus, one of the highest bonuses paid by the firm and more than Goldman CEO Lloyd Blankfein's $53 million, but considered himself and his team “under-compensated.”
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“As 2006 drew to a close, Mr. McGoldrick argued that his group should receive a substantial boost in compensation. By his calculations, the special-situations unit should get $400 million -- representing 2% of its assets -- and $800 million -- or 20% of the unit's profits -- for a total of $1.2 billion,” the Journal’s Monica Langley reports.
McGoldrick’s group began as an Asian distressed debt unit but quickly expanded operations as the profits from their acquisitions exploded. A former Goldman partner says that the Special Situations group was responsible for 20% of the overall earnings at Goldman. McGoldrick thought his group should be paid like a hedge fund manager—2% of assets under management and 20% of the profits. He also increasingly voiced dissatisfaction at the bureaucracy involved with putting together deals through the labyrinth conflicts of interest process at Goldman Sachs. (A mind-boggling possibility, since Goldman is famously fast and easy with its conflicts rules.)
He left earlier this year when Goldman didn’t pony up the money he demanded for his group. Goldman allegedly responded to his departure by quietly letting the word leak that McGoldrick had suffered a medical crisis, perhaps even a mental crisis. They were worried that McGoldrick’s departure would spark “an exodus by Goldman's other star employees,” the Journal writes. McGoldrick calls all that talk of being “wheeled out” pure nonsense.
Apparently McGoldrick is, as they say, quietly plotting his next move, which is reportedly to launch a hedge fund as soon as his non-compete agreement with Goldman expires.
“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 Journal writes.
Why $70 Million Wasn't Enough [Wall Street Journal]