So far in the coverage of the SpaceX deal, everyone has been focused on the controversy over “top left” position. Officially, Goldman Sachs and Morgan Stanley are jointly leading the deal, and we are constantly told (although not quite so emphatically by Goldman) that their relative position on the paperwork is a simple matter of alphabetical order. But what about the banks further down in the syndicate?
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This part of the prospectus is colloquially known as the “eye test”, because the names and logos get smaller the further you go down. And arguments over positioning in the optician’s chart can be every bit as passionate as those over lead-left, because there is almost as much to play for.
There is a lot of jargon here. The “lead managers” are the top banks in the deal – they get a much bigger share of the fees than anyone else and are responsible for making decisions about timing and execution. They are also responsible for keeping records of investor interest and, very importantly deciding on the allocation of shares.
When an IPO is heavily oversubscribed (SpaceX apparently has bids for about four times as many shares as it is selling), this role as “bookrunner” can be very important and lucrative. As IPO expert Jay Ritter points out, there is a lot of discretion about which investors get the shares they bid for and which investors gets their orders scaled back. This means that the investors have to be nice to you; being bookrunner on a hot deal is one of the few situations where the sell side has the power.
At the other end of the scale, “co-managers”, despite the title, have little or no responsibility when it comes to managing the issue. They often don’t have very much to do all except phone up the small clients that bigger banks don’t want to bother with. Co-managers are often responsible for particular geographical areas where they have strength, and if they are able to deliver really big chunks of capital they might have the clout to insist on being called “passive bookrunners”. That’s very much an honorary title when it comes to allocations in an oversubscribed issue – the co-managers and passive bookrunners can ask nicely on behalf of a really important client, but they don’t make final decisions. But it does mean that you get league table credit, which matters a lot to bankers.
It appears that banks like SocGen and Mizuho might have been expecting to be “passive bookrunners” on the SpaceX IPO, but they are not. They are going to be listed as mere co-managers. This sucks pretty badly for them, but there isn’t much that can be done; in a deal like this, the smaller players don’t have much leverage and nobody wants to make a fuss because it might affect their relationship with SpaceX. Everyone involved is declining to comment in public, but it’s likely that harsh words in many languages will have been exchanged in private.
Elsewhere, when the co-founder of private equity house Thoma Bravo used to wake up in the middle of the night with a bright idea, he apparently didn’t scribble it on a pad by the bed and go back to sleep – he called or emailed an associate. Now, however, Orlando Bravo is finding that it’s easier to ask an AI chatbot, get a quick answer and then presumably go back to sleep.
Obviously, this is a bit of a double edged sword for the associates. On the one hand, as Bravo says, not getting the midnight calls “improves their life, which is what they want”. On the other hand, if the boss is using AI to answer his questions in the middle of the night, that raises the worrying possibility that he might be able to use it during the day too.
The best scenario for PE associates would be that they now get to work on a curated selection of best ideas, rather than any random shower thoughts or night terrors. Bravo himself says that he thinks AI will allow young employees to “mature faster” and focus on higher-order thinking and investing. But although their lives might get easier, they may feel a bit lonely in the middle of the night.
Meanwhile …
It seems that President Trump may have mistaken a comment about Citi’s number one position in the league table for power and energy M&A for them being in the lead overall. (Actually, Goldman Sachs is, by quite a margin). Slightly embarrassing, but his public message of congratulations might be welcome in any case, as everything contributes to the sense of improving momentum and Citi’s share price received a brief boost. (Bloomberg)
“Microshifting” is the new term for employees splitting their work into chunks and taking time for family life, personal projects and relaxation in between. It’s not a new phenomenon, though – as well as being what everyone did while working from home in the pandemic, junior bankers have been finishing the day’s work, getting dinner and then starting the evening shift at 11pm for ages. (WSJ)
Former Morgan Stanley equities analyst Huw van Steenis is moving from his position as vice-chair at Oliver Wyman to an “economic and policy strategist” role at Apollo. (Financial News)
Magnetar Capital is launching a new equities hedge fund which will be managed by human portfolio managers, but which will have hundreds of AI bots “scouring the investment universe for ideas” and making recommendations to them. Head of AI Quant Trevor Mottl has bought multiple Nvidia servers and developed an advanced inference layer, but it’s not clear which lucky portfolio manager is going to enjoy the experience of an electronic sell-side. (Bloomberg)
Revolut founder Nik Storonsky described his top employees as “self-guided missiles”, but although he has given them the freedom to launch new products on their own initiative, the ECB has reminded Revolut that there does actually need to be a bit of central control and approval. (FT)
Travelling bankers will be pleased to hear about a new chain of airport lounges centred on video games, which might mean that there is less of a queue for the small sandwiches and warm white wine on your next roadshow. (WSJ)
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