I first became interested in Leda Braga after watching a recording of her lecture on data science at the ‘Women in Data Science’ conference at Stanford University in 2018. Braga has been described as ‘the most powerful female hedge fund manager in the world’.[1] After spending 14 years as Head of Systematic Trading at BlueCrest Capital Management, Braga founded Systematica. Unfortunately, there is not a wide range of information readily available surrounding Braga’s leadership style. Therefore, this post will explore her career and the approach of Systematica.

Originally from Brazil, Braga attended Imperial College London where she gained her PhD in Engineering. After working as a lecturer and led research projects for three years she then joined J.P. Morgan as a quantitative analyst in the derivatives division as she was missing commercial pressure. Sources have suggested that Braga’s PhD contributed greatly to her exceptional trading career as she is an ‘active researcher: always looking for better investment opportunities and strategies’.[2]

Braga’s breakthrough year was 2008 during which she brought BlueCrest’s computer-driven fund BlueTrend through the crisis. That year BlueTrend delivered a record 43.3% return while investors elsewhere became increasingly nervous due to the failure of major banks. Braga put her success down to her systematic approach claiming ‘it was clear our algorithm was responding and cutting risk where it needed to…higher volatility does not mean you need to panic’.[3]

Beyond 2008, Braga strongly believes in the benefits of a systematic approach largely due to increasing regulatory pressures and investors’ demands for lower fees. Nicknamed the ‘Queen of Quants’, Braga summarises her approach as articulating the investment process ‘through al algorithms, equations and code which means that the intellectual property exists in its own right’.[4] This passion inspired Braga to start Systematica in 2015 which offers ‘a range of new fee structures, liquidity terms and strategies’, using machines ensures ‘the amount of data you need to capture and process is way beyond the ability of one or two or ten brains’.[5] In spite of the evident advantages of systematic trading, discretionary trading still remains prevalent as research from Wharton suggests ‘people are more likely to lose confidence in the algorithm than the human after they both make the same mistake‘.[6]

The limited information available about Braga suggests that her leadership style entails heavily prioritising innovation while also maintaining a strong emphasis on people. She believes in ‘leading from the front’ and exhibits a strong commitment to diversity claiming ‘women turn up for interviews less than men…less women go into finance in the first place…that needs to change’.[7] Arguably, this commitment goes beyond merely the hiring process as retaining diverse employees and allowing to be who they are at work is a top priority for Systematica. Braga claims it is ‘okay to be the odd person around the table occasionally’ and welcomes a range of perspectives.[8] Ultimately, available resources indicate that Braga puts the importance of people down to the nature of her work describing the hedge fund business as differing from banking as ‘the relationship with investors is deeper… it’s a very personal business’.[9]

[1] Julia La Roche, ‘How the most powerful female hedge fund manager sees trading changing in the next 10 years’, Business Insider (July, 2015). https://www.businessinsider.com/meet-leda-braga-2015-7?IR=T

[2] Azeez Mustapha, ‘Leda Braga: A High Earning Hedge Fund Manager’, ADVFN Financial News (May, 2014). https://uk.advfn.com/newspaper/azeezmustapha/26204/leda-braga-a-high-earning-hedge-fund-manager

[3] Will Wainewright, ‘Trend Setter: EuroHedge meets Leda Braga’, HFM: Euro Hedge (March, 2018). https://hfm.global/eurohedge/analysis/trend-settereurohedge-meets-leda-braga/

[4] ‘Trading Legends: Leda Braga’, https://traderlife.co.uk/series/tradinglegends/trading-legends-leda-braga/

[5] Will Wainewright, ‘Trend Setter: EuroHedge meets Leda Braga’, HFM: Euro Hedge (March, 2018). https://hfm.global/eurohedge/analysis/trend-setter-eurohedge-meets-leda-braga/

[6] Julia La Roche, ‘How the most powerful female hedge fund manager sees trading changing in the next 10 years’, Business Insider (July, 2015). https://www.businessinsider.com/meet-leda-braga-2015-7?IR=T

[7] Will Wainewright, ‘Trend Setter: EuroHedge meets Leda Braga’, HFM: Euro Hedge (March, 2018). https://hfm.global/eurohedge/analysis/trend-setter-eurohedge-meets-leda-braga/

[8] ‘Leda Braga, CEO of Systematica Investments’, Talks at Goldman Sachs (September, 2019). https://www.goldmansachs.com/insights/talks-at-gs/leda-braga.html

[9] Will Wainewright, ‘Trend Setter: EuroHedge meets Leda Braga’, HFM: Euro Hedge (March, 2018). https://hfm.global/eurohedge/analysis/trend-settereurohedge-meets-leda-braga/

The first year of the Reagan Administration has been widely regarded as a crucial turning moment in American economic history. While Reagan’s impact has been widely praised, recent fears surrounding rising inequality in the US have linked Reaganomics to current trends feeding the issue. This post seeks to briefly outline the major components of Reaganomics and draw upon links that can be applied to the situation today.

Reagan implemented various economics measures soon after assuming office in 1981 citing economic affairs as one of his top priorities. His sense of urgency was determined by the US’ persistent inflation, sluggish growth and troublesome post-war recessions. In line with the goals of Nixon, Ford and Carter, Reagan was eager to stimulate investment and reduce unemployment and inflation by emphasizing traditional values such as hard work, independence and freedom of choice. However, many economists have noted that Reagan’s strategy received such significant attention because ‘prior presidents Lyndon Johnson and Richard Nixon had expanded the government’s role’. [1] Reagan’s campaign had been fuelled by promises to ‘get the federal government off the backs of the American people, to put Americans back to work, and to place America back on the road to economic prosperity’. [2] The keys to economic prosperity were perceived as major cuts on income taxes, significant deregulation for businesses and expanding the money supply. In contrast with Keynesian doctrines which focussed on demand, the origins of supply-side economics exhibited the view that regulations were having a negative impact. Reagan’s “clean bill” proposal entailed ‘personal tax reductions of 10% each year for three consecutive years and, second, a major business tax reduction which greatly shortened the depreciation period during which companies could claim tax credits for such costs as buildings, vehicles, and equipment’.[3]

The extent to which Reaganomics was a success has triggered significant debate. Furthermore, the discussion has been ongoing with contemporary critics and current writers offering a variety of analysis. One of the most common criticisms associated with Reaganomics was undoubtedly suggestions of the policies’ contribution to inequality. Charles Jacob claimed in 1985 that ‘the Urban Institute in 1982 concluded that Administration programs provide modest income gains for the average household. However, the gains to families in the upper-income brackets are quite large’ which underlines the prevalence of inequality fears even in the initial stages of implementation.[4] Another observer writing in the 80s, Marilyn Power, shared a similar verdict by suggesting that free market ideology does not deem poverty as a problem. She supports this statement by arguing that ‘society may choose to prevent the poor from outright starvation, but any attempt to lift them out of poverty breaks the rules of the competitive game: there must be both winners and losers’.[5] Inequality under Reaganomics has frequently been discussed with regard to specific minority groups including black Americans and women. The nature of inequality for minority groups is demonstrated by the poverty levels between 1980 and 1988 which for black families ‘increased from 35.5% to 37.3% … for white families it increased from 11.2% to 12.4%’.[6]  

Interestingly, Reaganomics still features regularly in financial news today which has become especially notable with rising inequality discussions (see post on T-Mobile & Sprint). The godfather of supply side economics Arthur Laffer was recently awarded the Presidential Medal of Freedom by Trump for his appraisal & writing on Trump’s economic policy. Reagan had relied heavily on Laffer’s policies of low-tax & low regulation supported by the Laffer curve which predict boosts in incentives to work, invest and subsequently economic growth. Writers such as David Jacobs have expressed extreme disapproval of Reaganomics and argues that people ought to look to political causes for the inequality issues today. He adamantly links the anti-union stance with sympathy for ‘policies that advantaged his political party’s affluent base…these citizens wish to avoid higher taxes and often profit from cheap labor’.[7]

[1] ‘Reaganomics: Why It Wouldn’t Work Today’, https://www.thebalance.com/reaganomics-did-it-work-would-it-today-3305569

[2] Maurice A. St. Pierre , ‘Reaganomics and Its Implications for African-American Family Life’, Journal of Black Studies, Vol. 21, No. 3 (Mar., 1991).

[3] Charles Jacob, The Revolution in American Political Economy, Law and Contemporary Problems, Vol. 48, No. 4, Tax Legislation in the Reagan Era (1985).

[4] Charles Jacob, The Revolution in American Political Economy, Law and Contemporary Problems, Vol. 48, No. 4, Tax Legislation in the Reagan Era (1985).

[5] Marilyn Power, ‘Falling through the “Safety Net”: Women, Economic Crisis, and Reaganomics’, Feminist Studies, Vol. 10, No. 1 (Spring, 1984).

[6] Maurice A. St. Pierre , ‘Reaganomics and Its Implications for African-American Family Life’, Journal of Black Studies, Vol. 21, No. 3 (Mar., 1991).

[7] David Jacobs, ‘Rising income inequality in the U.S. was fuelled by Ronald Reagan’s attacks on union strength, and continued by Bill Clinton’s financial deregulation’. : http://bit.ly/1poBh64

In October 2007, Merrill Lynch declared a $7.9 billion write-down due to their substantial dependence on mortgage-based collateralized debt obligations, trading partners’ loss of confidence in their solvency and a dubious ability to refinance money market obligations.[1] By September 2008, Bank of America had agreed to purchase Merrill Lynch for 0.8595 shares of Bank of America common stock for each Merrill Lynch common share.

This post will explore the leadership of CEO Stanley O’Neal and the extent to which his poor leadership decisions contributed to the 2008 crisis and sparked the sale of Merrill Lynch. By 2000, O’Neal was leading Merrill Lynch’s brokerage department as a result of his bold and proactive business initiatives. Despite his aggressive strategies, increasing respect amongst peers led to his appointment as Chief Operating Officer in 2001, making him the first African American leading a major Wall Street firm.

The CDO Market

Following O’Neal’s initial success and highly impactful proposals, his problems began with increased involvement in synthetic collateralized debt obligations (CDOs) consisting of pools of loans and credit default swaps. These complex products were originally developed by a team at J.P. Morgan in 1997 with the goal of reducing risk when loans were made to top-tier corporate borrowers.[2] Merrill Lynch’s increasing involvement in CDOs produced record earnings in the first quarter of 2007 facilitating O’Neal’s long-term obsession with beating Lehman Brothers, Goldman Sachs and Bear Stearns in profit growth.[3] As the year went on and the CDO market notoriously fell apart, other banks began to reassess their position. Meanwhile, Merrill Lynch became the largest underwriters in this product entailing a buying spree of 23 major residential and commercial mortgage-related companies.[4] Joseph Heller has approached the pattern of continuity in business operations from a psychological perspective arguing for the existence of a ‘powerful pressure individuals feel to appear consistent with certain prior commitments … the need to be consistent is ingrained in human nature’.[5] Therefore, instead of being adaptable, O’Neal was guided by Merrill Lynch’s commitment to the CDO market and failed to identify the urgent call for change other Wall Street firms were swiftly reacting to.

Leadership Style

O’Neal’s leadership style has attracted a variety of criticisms due to his ruthless nature, tendency to ignore the opinions of others, poor hiring decisions and detached persona. Alongside a lack of adaptability, O’Neal allowed his personal obsession with overthrowing Goldman Sachs to dominate CDO decisions and triggered his fearless appetite for risk. This insatiable hunger for increased profit margins required the meticulous reduction of expenses. While risk-taking is an essential and irrefutably inevitable aspect of the industry, had O’Neal welcomed the expertise of others Merrill Lynch’s over-exposure may have been prevented. O’Neal’s rash risk-taking can be recognized in his early leadership decisions encompassing an initial strategy of laying off 10,000 employees, disrupting the organizational culture and attempting to transform the entire business model.[6]

The inclination for O’Neal to trust solely his own judgement is illustrated through his personal selection of new executive team members who were usually close friends as opposed to objectively selecting qualified candidates. This pattern proved to be catastrophic for the future of Merrill Lynch and had detrimental consequences. The appointment of Ahmass Fakahany as co-president is a prominent example during his position overseeing the internal CDO team, credit and risk management. Prior to the position, Fakahany had contributed to administrative functions including human resources and computer systems. O’Neal overlooked this evident lack of experience in the securities industry due to his preference for subordinates who failed to offer opinions or oppose his decisions.

Consequences

The amalgamation of O’Neal’s poor decisions came to a head as the mortgage market faltered. The unregulated nature of CDOs had allowed questionable assets to be passed off as higher-quality goods which resulted in a false sense of security for banks and investors.[7] This false sense of security was illustrated clearly by the concerns of North Fork Bank who met with Stanley O’Neal on various occasions but were fearful that ‘there was a distinct possibility that they didn’t understand fully they own risk profile’.[8] Once O’Neal became aware of the catastrophic nature of Merrill Lynch’s problems, he set about trying to find solutions alone as opposed to consulting the board. Following the proposal of various mergers, the board discovered he had been including a separation package of $250 million if he was not permitted to lead the newly formed firm. Subsequently, O’Neal was forced into retirement in 2007 taking equity profits worth over $160 million.[9] Following the merger with Bank of America, Merrill Lynch continued to operate within wealth management before subsequent integration into BoA Securities.

[1] Joseph Heller, “Through Thick and Thin and Changing Data: The Innate Influence of Prior Predictions on Corporate Disclosures”, Securities Evaluations (2018) p.11.

[2] Gretchen Morgenson, Reckless Endangerment: How Outsized Ambition, Greed, and Corruption led to Economic Armageddon (Times Books, 2011) p.30.

[3] Gretchen Morgenson, Reckless Endangerment: How Outsized Ambition, Greed, and Corruption led to Economic Armageddon (Times Books, 2011) p.33.

[4] Kimberly Hardy, “Analysing Leadership Decisions: Stanley O’Neal and Merrill Lynch”, International Research Journal of Marketing and Economics (2016) p.33.

[5] Joseph Heller, “Through Thick and Thin and Changing Data: The Innate Influence of Prior Predictions on Corporate Disclosures”, Securities Evaluations (2018) p.3.

[6] Kimberly Hardy, “Analysing Leadership Decisions: Stanley O’Neal and Merrill Lynch”, International Research Journal of Marketing and Economics (2016) p.31.

[7] Kimberly Hardy, “Analysing Leadership Decisions: Stanley O’Neal and Merrill Lynch”, International Research Journal of Marketing and Economics (2016) p.30.

[8] Kimberly Hardy, “Analysing Leadership Decisions: Stanley O’Neal and Merrill Lynch”, International Research Journal of Marketing and Economics (2016) p.30.

[9] John Nirenberg, “A Multifaceted View of CEO Compensation and Performance: A Case Study”, Journal of Social Change (2018) p.53.