24 Sep 2009
In replacing the man who replaced the man who replaced hedge fund titan Stanley Fink, Kevin Hayes is the clear CEO-in-waiting at Man Group. (no pun intended).
“The CEO role is certainly something I’m interested in,” says Hayes . “You always want to have an FD who has those aspirations. Succession planning in organisations is more important nowadays and we’ve seen examples in many large FTSE companies where that planning is not completely apparent.”
Hayes knows being coy on the matter of his aspirations would be a waste of time. His ascension to that role at the world’s largest listed hedge fund manager would simply be the continuation of a habit of Man FDs becoming its CEO. Fink was FD before becoming CEO; the current chief executive, Peter Clarke, had been FD before a stint as deputy chief executive and his appointment as Fink’s successor in spring 2007, the same time Hayes was brought in from Lehman Brothers to replace him. Should he want to carve out a long-term career at Man, Hayes can take heart from the trajectory of Harvey McGrath, Prudential’s new chairman, who, in his 27-year career at Man Group, served as its finance director, chief executive and chairman.
Spookier still is the parallel between the formative career trajectories of Fink and Hayes. Both took the road less travelled, training in law and moving into accountancy practice, then into business and later to their respective FD roles at Man. Both have three children and, cutting heavy-set, imposing figures, dressed in navy pinstripes Hayes with added braces they even look alike.
Here, one can’t help but conclude, is one FD positively ripe for a headline role, though for the moment Hayes sees the way he and Peter Clarke work together as invigorating. “Strategy is very interesting, but execution is really important to getting momentum and a very important component of what I do is that execution; it tends to be more internal,” he reveals. “Peter and I have a symbiotic relationship. We’ve both been out this week on investor relations I’ve been covering clients in the US and he’s been covering clients in the UK, which works well. Peter has a very long-standing relationship with many of the shareholders, so sometimes it’s good for them to see a different face and hear a different perspective.
“But I wouldn’t say there’s anything in Peter’s world that, at the moment, I need to do to feel fulfilled. There’s an awful lot in my own world and current responsibilities that mean I still feel challenged.”
This is a man whose taste for a challenge has seen a business administration graduate from Wellington, New Zealand, make partner at Ernst & Young’s New York operations inside six years (aged 34) and CFO for Europe and Asia at Lehman Brothers nine years later. His departure from Lehmans came just 18 months shy of its implosion, his only inkling that something was wrong was a sense that things were changing, of decisions being made that he did not like.
“I was sitting there watching Bloomberg that weekend [it was declared insolvent], seeing the commentary coming across, then finally on Monday when it filed for Chapter 11… that was devastating,” he recalls. “When you know the number of people that worked at Lehmans who had their entire personal fortunes tied up in the stock and it suddenly, overnight, became worthless, that’s horrible. I’ve thought about whether I could have predicted that. There’s nothing I could tangibly say that I identified or if, perhaps, people could have necessarily identified the solution…” he trails off.
His career at Lehmans ended with a two-year stint in a role created for him that carried a fancy title, but a chunky mandate: to make the business bigger, to extend the business’s roots outside its core US, European and Asian markets. It took him out of finance, making use of his cost-culling experience in various parts of the world but sating his thirst for a meaty challenge, hiring from ri val firms, running teams on three continents, establishing the culture of the expanding businesses and spending time in India to establish Lehmans’ offices there.
“India is the most incredible place you could ever go to the smartest people, the most enthusiastic, everyone wants to learn,” he recalls. “There was a certain amount of frustration in the organisation about getting scale out of the infrastructure. I’d never done productivity and process improvement and it is quite a science there is a skillset that’s required. I spent the first two months talking to a lot of people about how to do it, hired some very capable people with consulting backgrounds a lot of Six Sigma people from JP Morgan, people who really knew how to do this, with a totally different skillset from mine project management people who write lists. Things that I don’t do,” he laughs. “Culturally we hit a bit of a barrier because, ‘I’m here to re-engineer you’ is not necessarily a welcome statement. So there was a bit of negotiation and that was the thing that weighed on me the most, getting frustrated in really getting traction. But one of the greatest things we did was Lehmans India, something I had never dreamed, thought about, even considered, and there it was. I was front and centre in that initiative,” he says.
“I had the discipline to extract costs and we saved a good deal of money through outsourcing and productivity processing. But the idea was really to infect the culture with a new way of thinking about processes. I had a lot of fun,” he says. “But then it got to a point where you’ve set up some processes, you have very capable people and that will be self-sustaining. Then it’s time to move on again.”
At this stage one might have expected a man with Hayes’s CV to break into the top ranks. But perhaps he was a touch too hungry. Despite being a barrister, a former partner with a Big Four firm, a veritable old-hand at Lehmans as a divisional financial controller in New York, international CFO out of London and a proven grower of the business, Hayes wonders if the bank’s top brass were ever willing to accept him into their ranks. His thoughts are surprising and probably ring true for many FDs pondering their next move.
“At the end of my time there I had gone to Lehmans saying ‘My career has reached a plateau; what are the opportunities?’ In some large organisations you tend to find ‘inner’ and ‘outer’ circle situations and I think, by that stage, I was more on the outer circle than the inner. So when I said ‘What’s my next challenge’. They said ‘well, we’ve picked the team’,” he reveals. “It’s probably more the fact that I drifted to the outer sides, rather than being in the inner circle that led to Lehmans saying that. And it’s important for organisations to pick key people they feel comfortable with.”
And he admits he found himself at an impasse. “I had been thinking about things in ten-year cycles, though not deliberately: I don’t think I’d ever in those 12 years talked to a headhunter, other than to recruit somebody. But if you put your head above the parapet you find there’s lots of good things out there.”
And along came Man Group, his first plc FD job. Hayes got to enjoy the tail end of bull market prosperity and growth in his first year there, before the crunch and Madoff turned the screws. In his first set of financial results, 2007 saw the group report pre-tax profit up 60% to $1.5bn (£0.9bn) on funds under management (FUM) of $61.7bn (£37.3bn) at its March 31 year-end. By the following year-end pre-tax profit had almost doubled and FUM rose to $74.6bn (£45.1bn).
But by March 2009 the global economic landscape was unrecognisable with the implosion of Lehmans and the shocks that followed: investor panic sent redemptions through the roof and Man lost most of its 2007/2008 gains, reporting pre-tax profit slashed by half and FUM at $46.8bn (£28.3bn), well below 2007’s levels.
In December 2008, the group admitted a $360m (£217m) exposure to the Madoff scandal through investments made by its money-spinning fund-of-funds business, RMF, in “Madoff-related” funds. Despite a careful campaign of investor relations to explain where the failure in due diligence was, a number of Man’s clients simply cashed out. Three months after, Man Group cut its workforce by 15% a relatively modest cull of almost 300 jobs, cutting out $60m (£36m) in cost across the business over the next year.
As head of group risk (as well as group head of tax, treasury and technology) it happened on Hayes’s watch. But it is the one topic of discussion where he reverts to toeing the party line. Man swiftly re-jigged itself to integrate its platforms, “re-diligenced” and stressed its strong capital base, as you would expect. “Everybody is a risk manager in a crisis,” he says. Some of the investors that decided to remain with Man undertook their own due diligence on Man’s checks and balances, reflecting how badly trust in the group was shaken. But his answers don’t go far enough to shake the feeling that, before the event, so long as it received its redemptions on time, the group had no need to ask questions.
“The role of the regulator to govern was somewhat leaned on in the past and many people relied on the regulatory role around the Madoff structure,” Hayes believes. “People are now less willing to assume the regulator is going to provide a degree of assurance.” With the European Commission and the SEC looking into stepping up hedge fund regulation, this ethos may not last.
As head of IT in a business for which trading technology is mission-critical, Hayes used his experience from the Lehmans process and productivity gig to grow Man’s infrastructure without adding cost. “Our two core assets are people and technology. In a business like ours that has the ability to grow dramatically, getting scale out of infrastructure without adding costs is a key thing, not just adding head-count but leveraging automation. In investment management, what you want to try and do is focus on what we add value to, what is core to our investors, as opposed to taking on board a lot of processing so the IT expense, having a good portfolio of technology and investing in that technology is very important and having a finance director overseeing that is good.”
Hayes has his fingers in a lot of pies. He is also the highest-paid FD in the FTSE 100 (including salary and bonuses) according to Financial Director magazine’s November 2008 salary survey while his chief executive Peter Clarke enjoyed the same status in our 2007 survey, though on about £3m more, all told reflecting the impressive growth Man Group has enjoyed since Fink turned it into a hedge fund tour de force from a modest, 200-year old sugar brokerage whose activities pre-date the birth of commodity futures.
Whether he becomes chief executive at Man when the time is right, or moves on, as many of the FTSE 100’s top FDs have done amid the credit crunch, it’s unlikely he will settle for the familiar. “At university I realised that a big part of accountancy was law, so I decided I’d do a law degree too, which started halfway through my accounting degree,” he recalls. “But there was another reason which is that, at that point, not many people did law and accounting together. To me, it was a fundamental decision, something about me being different. In New Zealand students go overseas because you have to get that experience. They go to England or Canada: they have a lot of the same social systems. So I chose New York.” Perhaps London is going to wear a little thin.
This is article originally appeared in sister publication Financial Director
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