Trader TV’s Human Capital invites four Lehman Brothers alumni; John Cortese, head of trading at Apollo Global Management; Dan Friedman, head of spread product trading at Millennium; Drew Mogavero, global head of credit products at Barclays and Mike Sobel co-CEO and president of Trumid, to discuss their experiences at the bank, the people they worked with, the lessons they learned and how they have taken those lessons forward in their careers and their roles today.
To see the markets through the eyes of experienced traders, watch Trader TV: Human Capital.
Transcript:
Dan Barnes Welcome to Human Capital. Trader TV’s deep dive into teamwork in capital markets. Joining us today are John Cortese of Apollo Global Management, Dan Friedman of Millennium, Andrew Mogavero of Barclays and Mike Sobel of Trumid. Mike, to start with, how did you guys all meet?
Mike Sobel We’ve known each other for a long time, pushing on 25 years here for most of us. We all joined Lehman Brothers in credit trading, kind of circa 2000, give or take. Drew was a few years ahead of me, and I remember being struck early on by how much responsibility he had just two years out of school. And I was fortunate enough to follow the same path behind Drew. And I think by the time Friedman had got there a couple of years later, it probably seemed like the three of us were seasoned pros, which is kind of crazy. But, you know, over the course of the next handful of years together, we worked super hard. We learned fast, how to gather, share, use information, how to manage risk mostly successfully, how to build relationships with colleagues and clients. And we definitely had a lot of a lot of fun together, spent a lot of time at nice New York City restaurants. We had a few great years, particularly for John and I of New York Giants football together. We had some really fun boondoggles. We used to do a high-yield conference down at Disney World each year. So good clean fun, mini golf and karaoke and riding roller coasters. We worked out of this kind of windowless conference room down there with wires and phones and computers and carts of like room service food for all our meals. And without fail, there would be some market crisis while we were down there. One year, the autos got downgraded. We were there in March of 08 for Bear Stearns collapse. A bunch of, frankly, in retrospect, kids trying to manage that situation from this conference room at Disney. But you know, we learned to figure things out. Made plenty of mistakes but got more right than wrong. We learned as we went. And, you know, I think kind of all of that just reminds me that it’s the challenging times that really are the most formative. It’s where you learn the fastest.
Dan Friedman In order to join the high yield trading desk, you had to spend time in research. That was sort of the fundamental background you needed to have to be on the desk. You needed to be able to understand corporate balance sheets and cash flows and really build a strong foundation to trade high-yield credit. When I was in research, I used to get into the office at like 4.35 in the morning and I would print out all of the PNL reports, all of the credit sites research, all of the other printed research for every single trader and lay it on their desk and then go do my job in research. And then at the end of the day, I would pull up a chair and I would sit next to Mike or John or Drew or other members of the team and just ask like, what probably at the time to them were just like the most inane questions like; why did you send this? Like, what do you mean by this? Like, what does that do? Like? And, you know, to their credit, they gave me the time. And I think finally, when to when a spot opened up on the desk, they were probably just like, man, we should just give it to this guy. He’s here all the time. You know, one of the things that resonated with me through that time on the desk and up until the bankruptcy was just the team spirit. Every day we were sort of a team in it together. Obviously, there was a lot of change and tumultuousness happening in the markets that we had to contend with. A lot of new things happening. Obviously, we went from being primarily a cash bond trading desk to then almost a fully credit derivative trading desk and having to deal with both the rise of that and then ultimately how that played out up and into the bankruptcy. And you know everyone to a person would you know was in early 5.30, 6.00 in the morning trading all day helping each other out backing each other up. I mean that was my first real foray into trading was backing up Drew and Mike when they were off, whether at client meetings or, you know, the small amount of holiday they took. And they gave me a lot of responsibility to trade their books. It was just a real fun environment. And you learned super-fast because of that team atmosphere and everyone helping, everyone explaining things. You know, if there’s something new happening with the curve shapes or recovery or how, you know, certain things were being priced, you know, everyone was sort of in it together. It wasn’t one person doing their own thing. As a young person coming up the curve quick. It was it was really an incredible environment to be in.
Andrew Mogavero There’s no substitute for hard work, being entrepreneurial. Like that’s the thing that I remember the most. It was like the whole team, you know, the four of us and all the people that we worked with. We were always trying to come up with new and interesting ideas, you know, whether it’s a trade idea. How you would sell a research report, or your content, whatever it was that we were doing, we did it, I would say pretty hard, like hard work and pretty fast. And we went, you know, fast in a way of trying to be fastest to market, fastest to innovate, first to be in front of clients. Like that whole concept, you know, it was very problematic and it’s still probably now. Like, you know, you still have to be a thought leader and an entrepreneur in your daily business. And I feel like, you know, at least for me personally, we learned that altogether. Like we learned that through trial and error, through making mistakes, through doing some things right, you know, but at the end of the day, always doing it in the spirit of, you know, just working hard for our clients and for the firm that we worked for. And you’ll always think very fondly upon that because it’s still rings true currently.
John Cortese We all grew up in a time where helmets and safety belts were optional. And I think being in your 20s at Lehman, I’m just struck at you look back at the managers. The people around, letting these 20-something-year-old kids basically come in and learn fast and learning fast meant you made mistakes. There were no bumpers in the bowling alley. There is no TRACE to tell you where something is away, you didn’t have to Trumid to give you the midpoint. You didn’t have all this information. You’re like, you go out there and figure it out. You use your wits, use your street smarts. I don’t care where you went to school, I don’t care where you got your degree or MBA or what you got in your S.A.T. Unless you’re Mike Sobel. You do care what you got on your SATs. But, you know, it was just like this okay to fail environment. And we were young enough that the mistakes weren’t, they didn’t cut so deep that they were irrecoverable. And I think we worked with people that maybe that wasn’t the case for because they had been there for ten, 20, 30 years. They had family to support etc. We kind of wrote this beautiful stage where we could really experience all sorts of failures and come back from it. And that was really cool. And that’s probably why we’re sitting here today doing very different things very successfully, is that having had that kind of time to fail and learn with an incredible amount of responsibility on our shoulders.
Andrew Mogavero That mindset of continuous improvement and what you’re trying to do, like that stuff is hard to teach. And it really only came through like the early mornings and the late hours. Back then, there weren’t meetings. You know, the idea of being off the desk for meetings and putting things in the calendar was not a thing. So, you’re meeting time and your learning time was in the morning or in the evening. And I remember those times fondly and that still resonates like to even now, we all have bigger jobs and plenty of meetings and calendars to manage, but you still have to go prioritize and find that time, whether it’s early morning or late in the evening, to dig deep on something that you think is an opportunity.
Dan Friedman Just the willingness of every single person on that desk to offer advice or to spend the time in teaching and answering the questions and wanting to go through it. You know that I felt that was somewhat unique. Right. You know, even though the people who were leading that desk and the most senior people were the ones there till 7.00 p.m., 8.00 p.m. or 9.00 p.m. or in at 5.30 a.m. or 6.00 a.m., willing to answer the questions, willing to help out, not just focused on their own thing. It wasn’t siloed. It was a full team effort, you know, to the point where, you know, your ability to get up the curve and trade your own book happened quick. Right. And those names were given up. All right. I remember, you know, working for you, Drew, like, here’s the plan. You’re going to start creating this subset of names and you’re going to trade this subset of names. And, you know, those were names that you traded, that you were happy to give up and, you know, to see me advance and, you know, that type of culture, then. You know, it incentivizes it encourages people to want to keep learning and want to keep more because they can see that tangible progress and that tangible improvement. I thought that was a very, again, unique thing that we had on that desk.
Mike Sobel Our jobs are, you know, bigger and more important jobs than they were then. But we still don’t believe by any means that we have all the answers or that the way we did things last year is the right way to be doing them now or next year. And that is, you know, that’s a mindset. That I think is a really valuable one. And, you know, yeah, you’re going to make mistakes. And the goal is not to not make mistakes. The goal is actually to make them and learn from them quickly and be better next year than you were last year through those mistakes. And I feel like that, you know, definitely was embodied by the Lehman experience. But those are kind of lessons and mindsets and, you know, maybe like a sort of bravery or antifragility that we picked up then. And, you know, I know for me it’s still an important part of life and [our] career today.
Dan Barnes Drew, so now you’re the global head of credit product at Barclays. What lessons still stand from those early days and how have the markets and the business changed?
Andrew Mogavero What struck me about this group when we all worked together is we all had a desire to have very high share with clients, like we wanted to, you know, the names we were focused on. Like Dan brought up a great point, one of the reasons why we would easily pass names amongst each other is because, you know, you get busy stuff with change in the market. And I’d be like, I really wanted to just dominate 10 to 15 names and dominate as many of them as I could. And to the extent that the opportunities that grew beyond that, it was better to give a name to John or Dan or Mike and vice versa. And I’ll pass amongst each other so that we could really, you know, stranglehold those tickers and be there for clients. Like, you know, I mean, no one more than John would hate if like a trade was missed or a curve trade would trade away or an idea would trade away. Like none of that in my mind has changed, that mentality you still want to bring because it’s a client-focused mentality where you want to, you know, be in the best position possible to service your clients. Two is I would say is like the collaboration piece. Like, you know, we’ve all touched upon it how we all work together. Like, you know, John taught me how to trade, you know, credit derivatives. And I’d like to think I taught John a thing or two about how to trade cash. You know, I would have never been, you know, have had the, you know, successes and failures that I had without having Mike and Dan there to do it with us, you know, like that. So that collaboration piece doesn’t change. Another piece, communication, like we communicated a lot. Like whether we like talked about the hours of this early mornings, the weekends. It was nonstop communication. Whether that says a lot about our personalities, or our social lives is one thing. But like the fact of the matter is we all liked each other and wanted to communicate. Like that communication piece is super key, you know, now and to this day. And then the other part is like the innovation, you know. Dan, you touched about all the innovations in the market. Obviously, Mike, you’re in a catbird seat innovating. John at Apollo, you guys are doing some of the most innovative stuff out there, right? Like we always have to be innovating at all times. And like you said, if you think the business is just going to be the same that it was, you know, a year, ago or something like that, that’s not going to happen. So those are the things that I still think are the same. You know, what’s different, I like to say is back then because of some of the market structure shifts is we always like credit has always been a scale business in my mind. But back then it’s like you got your scale through diversification, I like to say. Like we had to do everything. Bonds, derivatives, illiquid bonds, distressed bonds, on-the-run bonds like, you know, some of us were trading loans and loan derivatives. You know, John was doing a lot of that. Like the more diversified, the better you were because clients would then come to you for everything. Now I feel like the way I try to focus the business is say, all right, let’s make sure we have the best people, specialized skills, not necessarily diversification, but specialization. Let’s have like the best people specialized on what they do and have them be the best at what they do. You know, be the best TMT trader or the best loan trader that you could possibly be. But like all of those, those principles about clients and collaboration and communication and innovation. I feel like that’s where I learned it and where a lot of us learned it together. And that still resonates to this day, you know, not just at Barclays, but at, you know, at Millennium, and at Apollo, Trumid and across the market.
John Cortese It was a time of like star traders in the street, right, in the marketplace. Like the big sell-side traders were probably bigger than most of the buy side. And you had many of them. You know, we know of the top of your heads, you still remember these names that are kind of legends in the markets that you’re going up against toe to toe, every day. But one thing it felt like for us was, you know, the morning would happen, and you don’t know, the market’s up, the market’s down. No one’s telling you, make your runs up this amount or down that amount or this buyer’s here or that or that seller is there. And your sales force, I mean, they try to control us from most of the information we got was we’d all go out there, we’d throw a bunch of spaghetti through our refrigerator by sending out runs on our best guesses and very quickly, I feel bad for these clients almost because like they would do, some client come in and do a big senior subtrade with Drew. And then Drew, we’d see it, Drew would mention it and this poor client would get bombarded with like ten other senior sub ideas from the rest of the desk. They couldn’t escape this like, herd mentality. They were just swarmed by the whole desk at once. No matter what was happening. It was very much a group mentality. And actually, like a diva-type trader generally in our business was kind of looked down on. Like it was not something that was respected. It was respected if you helped the team, the desk, make the most amount of money you could.
Andrew Mogavero John, you had the best analogy of all. Who’s going to be the penguin this morning, who’s going to be the penguin that’s going to be sitting on the iceberg, that’s going to jump in the water. And either see, is there a killer whale, it’s going to come to eat you, or is the water going to be fine and all the other penguins jump in and have a great time in the cold water. And like the fact that I even remember that, you know, here we are 15 plus years later or whatever it is, remember that it’s awesome. It is that mentality still has to be there. It’s like you got to be there for each other. You got to have each other’s back.
John Cortese And it’s harder today or it’s harder today when you don’t have that same proximity in culture.
Dan Barnes Is there a different level of risk today.
Andrew Mogavero Yes and no, right. Like the credit markets are bigger, like the credit markets are very large. You know, like you have an extremely large market, both public and private, that are growing. So, you could sit there and say, okay, jeez, that must mean there must be more risk now. But at the same time, clearly there’s a much higher element of regulation and controls and governance that maybe than existed pre-crisis, which makes the system, you know, safer, more functioning. I think, you know, just the depth of the derivatives market then is different than it is now. Although the derivatives market is clearly still a key part of the market, a well-functioning part of the market. So, I don’t I wouldn’t I shouldn’t say it’s more or bigger risk. It’s just like different risk and the velocity of the risk back then was quite high. Sometimes the sizes that were traded were, you wouldn’t understand today. But at the same time, you’ve got things like today where you have portfolio trades and you have billions of risk trading in a 30-minute window, like that was an innovation that didn’t occur back then, despite the fact that there was a ton of velocity of trading around CDS curves and things like that. So, I struggle with answering that, if there is like definitively more or less risk one time or the other. I just think that the forms of the risk-taking have changed a lot and are just different.
Mike Sobel When and how you think about managing inventory and moving things through. You know, the balance of like the market-making activity and connecting buyers and sellers versus the notion of prop risk and intentional prop risk, or just stale inventory and how the mentality around that has evolved and frankly, just gotten, I think much more effective and mature is, you know, part of advances in technology like portfolio trading, but also just adapting to a new environment and managing way more volume and way more risk technically with probably, you know, less balance sheet generating better returns on it.
Dan Friedman I think that the foundations of how to be a successful trader back then are still the same as they are now. You know, I think as Drew alluded to, you know, being very good with your clients. You know, as a sell-side trader, that is, you know, probably the most important thing. You know, you see more flow. You obviously get more mindshare when you’re speaking to large clients on a regular basis. I think the idea of, you know, trading through your inventory and having that franchise to be able to enter and exit trades. And also, just understanding fundamental credit, right, and knowing having a view on the trajectory of different credits, especially as you trade down the capital structure. I think is as important today as it was in 2006, 2007 and 2008. And so to me, the basis feels the same. Now, obviously there’s a lot of nuances that are very different, right? Clearly, pre-crisis, no one really thought about counterparty risk. And so, you know, that led to the advent of, you know, different, you know, a clearinghouse for derivatives. And obviously and, you know, John was sort of the point person in the market on this to move from trading derivatives as a completely IO contract to stack and snack where everything was sort of a fixed points traded, you know, as we went through in 07. Trying to think about how to unwind derivative trades where someone had bought the CDS at 25 basis points and it was now trading at 65 points, like, what do you pay for that mark to market? That’s you know, that was a very tricky thing. And so I think that advent of stack and snack sort of sort of changed that. Obviously, the growth of the buy side, passive money in particular has been enormous over the last 15 years. And so, you know, while banks balance sheets, you know, have oscillated, I think just the growth of the buy side compared to the sell side has just changed the dynamics in terms of both the quantity of bonds traded and how relevant the sell side positioning is to price action. So again, basis to me sort of the same of how to think about running your business and being a successful trader, but a lot of the nuances, you know, are different now than they were back then.
Dan Barnes Mike, of all the guys you’re sitting furthest away from where you all cut your teeth together, do those early experiences still resonate with you?
Mike Sobel Very much so. For me, that time at Lehman with these guys and many others really is kind of a North Star from an organizational career culture perspective. And as we built Trumid, those human beings and that time is a really important reference point and I also know that my partner, Ronnie Mateo, here spent that time of his career largely at Solomon Brothers, and his experiences were very similar. So, you know, those were kind of formative years at this point in the market at those times and in our lives. But, you know, especially, like I said, around culture and the power of creating alignment and a sense of ownership amongst a group of people and how fun, satisfying and kind of productive it is to have excellent people, knowing that the person to their left and their right is as good as they are. And trying as hard as they can. And that really brings out the best in, I think, individuals and a group of people. And that is something that certainly I try very hard to recreate. You know, we’ve talked a few times about innovation and agility. Fundamentally then we were trying to solve problems, we were eager to do things better again, like, you know, the next week than we did the week before. And I think along with deep focus and prioritization of clients and the ability to deliver on what you said you were going to do, and I know it. You know, at Lehman, we made commitments to clients around being great in a sector or credit and having a market share. We intended to, you know, fulfill those commitments and we built credibility and franchise by doing that. And that is every bit as important as ever. And by the way, like you have to be agile in order to deliver on that because whatever your plan is, you can guarantee that it’s not going to play out that way. And lastly, I would say the most progress is always made during the challenging times. The most kind of formative, strongest, frankly, in a way, like best memories are the hard things that you had to figure out. And, you know, Trumid, we’ve had the dark near-death experiences of being a startup. So, no shortage of those. And figuring out how to operate during Covid, which really was like, what a shake-up of the sort of operating environment and the snow globe. And those experiences, I hope, will be the stories that people will tell their colleagues and family and friends, you know, 20 years from now. And with lessons having been learned.
Andrew Mogavero I would stress to you is like, don’t underappreciate the importance of having fun at work. The memories we have, even in the most challenging times, like we were still in a twisted way, you know, trying to enjoy and have fun in our jobs. And you would come in every day and still challenge yourself to learn new things and improve and do the right thing by your clients and your people. That mindset of just trying to make sure that you are, frankly, forming friendships like we wouldn’t be doing this call if we weren’t, you know, you guys are all great clients and stuff, but we’re all still our friends. And so being able to form those friendships and relationships is a thing I think about a lot of having been here for 25 years. You’re like making sure that the people are coming out now, like just like we were 20 years ago, can share in that culture and that mindset. I think that’s just like super, super critical.
Dan Barnes Dan, Do you think there was one character trait that all of you shared when you were starting out?
Dan Friedman I would say grittiness. You got to have that grit. You got to come in every day, answer the bell. Everyone has the same access to opportunity that you have in the market. It’s a great equalizer and you’ve just got to have that grit to keep trying to get better, to keep trying to be better than your competition. To move, you know, not be dogmatic about market structure changes, about credit changes. You know, one of the lessons Drew and Mike gave me, you know, when a credit, when you have a position in a credit and it would go badly to take the credit to where it should trade. Not try and, you know, unnaturally defend it at the wrong level and then take it to the clearing level. And then, you know, that’s the new level and then trade around it. And I think just having that perspective on it in that grind mentality is definitely something I took from Lehman. The second thing is being open to new opportunities. I think all of us have done different things in their career, whether it’s traded different products, whether it’s worked in different jurisdictions, whether it’s worked at different firms, started a firm in Mike’s case. And I think just being open to those opportunities wherever they may be, because I think one of the great things about our profession and working at some of the firms which are so fantastic that we worked out is there’s always great opportunities that come along and being open to it. And I think everyone here has benefited from taking those opportunities as they as they’ve come up. And so that’s something that I’ve definitely taken from all three of these guys.
Andrew Mogavero We’ve talked a lot about like, you know, pre-crisis and stuff. But one thing I remember well was post-crisis. Like we’d all joined Barclays. We had a very strong team. It was a good it was a good fit for, as far as mergers go, and I remember my boss, our boss at time, René Cardoso, coming and be like, ‘Hey, listen, we have to start a London desk. Can you propose a team to send over there?’ And we had nine really good players on the team. And I was having so much fun with John and Dan and Mike. I was like, selfishly, I was like, Geez, I don’t I don’t want them to go. Why don’t I propose like, you know, the five, six and seven-hitter on the team to go over there. So I did that. And René is like remind me, when we promoted you to managing director about a year ago? Yes, you did and he’s like, so can you, you know, bleep act like one. We’re building a real business here. Like, don’t think about your team or being selfish, like, you know, act like a real leader. So why don’t come back to me with a better answer tomorrow. And so I go home and think about it, a was like fine. Take John and Dan and Alex Lance, who was our best young junior at the time, I was like, let them go. It’s like, that’s the right answer I’m very proud of you. Don’t ever make that mistake again. That was obviously a great experience for you guys. It was a great experience for the firm, even though at the time I did see it as a great thing for me, it was because I got to learn the European market and spend time with you guys over in Europe. And like these opportunities that come about to take a different path than maybe you thought, you got to jump on those. And John, there is nobody, you did two tour of duties right. You know, you met your wife over there. It’s like it’s like that part of the business hasn’t changed in my mind.
John Cortese Dan did too. Yeah.
Dan Friedman Yeah and is still there.
John Cortese And raised his family there. Yeah. There is great risk reward for sure.
Dan Barnes So, John, if you had to give a piece of advice to a group of young people who are sat in similar seats to one’s you guys were 20 years ago, what would that be?
John Cortese Look at the people you’re surrounded by. Surrounding yourself by really good people, I think is more important than anything else. You go into a bank or you go into an industry, there’s always the here’s the hot desk or here’s the team I want to be on, or here’s the fast track to whatever I want to get in life. And that’s like yesterday’s business. That was yesterday’s team’s path. And I think that for me, I always just have and still to and still to this day try to try to follow the people that you respect, try to follow the people that work hard and share your values, that give you opportunities that let you fail. That’s number one. And then I think secondly, we talked about high touch, and low touch, but high touch business isn’t just trading something that doesn’t trade that often. It’s feeling like you have an impact on something and that you can improve your input to get a better output. And that’s a better relationship with a client. That is a better relationship with a colleague that is, you know, inventing or thinking of a new product that’s working with your tech business to think of a different way to do things. Find a way that you can make it better and add value. And I think that the four of us were in very entrepreneurial seats. It felt very entrepreneurial, even if it was within a big organization that could be bureaucratic. And I think that it’s not, you know, crazy that the four of us have done four very different things. But I’ve taken a lot of risk in the process and felt like we could take that risk and be okay with whatever the outcome is. So I think finding that high touch seat in your business where you can impact the outcome is the second biggest thing and it’s less about the actual product you’re trading or even the place you’re at. The bank that you’re at is prestigious or not as prestigious as it may be. I would find those two things first.
Dan Barnes And I thank the guys for their insights today and of course, you for watching. To catch up on all other shows, including Trader TV This week at 6.45 a.m. UK time every Monday morning go to Tradertv.net.
Catch Trader TV shows each week:
To watch Trader TV This Week shows go to – Video
Or make sure to follow us on LinkedIn – Trader TV’s LinkedIn
Available as a podcast – here
