The so-called brain drain continues at beleaguered JPMorgan Chase.
A few days ago, a man named Fang Fang, the chief of JPMorgan’s Chinese investment banking unit, quit amid an investigation into the bank’s alleged practices of hiring people in Asia so their relatives in the government would send business the bank’s way. And yesterday, Michael Cavanagh, co-head of JPMorgan’s global investment banking operations, announced that he was jumping ship to the Carlyle Group, a Washington, D.C.-based private equity powerhouse known widely for its investments in the defense industry as well as for its ties to world leaders.
Over the years, Carlyle (which was named after New York's Carlyle Hotel, where two of the firm's founders often met to discuss the formation of the business, and where Woody Allen can often be seen playing the clarinet with his jazz band) has employed such figures as Former U.S. President George H. W. Bush, Former British Prime Minister John Major, Former U.S. Secretary of State Jim Baker, Former U.S. Secretary of Defense Frank Carlucci, Former White House Budget Director Dick Darman, and Former Philippines President Fidel Ramos.
Cavanagh’s departure came as a shock to many, in part because he was the heir apparent to JPMorgan Chase CEO Jamie Dimon’s throne. Cavanaugh had worked with Dimon for more than 20 years, first at Bank One, and then at JPMorgan. Dimon, upon his colleague’s departure, released a glowing review of Cavanagh’s work, calling him “an exceptional partner with great instincts, integrity and strategic thinking.”
Cavanagh, for his part, said in a statement that “it was not without a lot of soul searching that I decided it was time for me to take my career in a different direction.” Which also came as a shock to many who weren’t aware that Cavanagh, who worked as head of the bank’s treasury securities unit through the 2008 financial crisis, had such a thing to search.
Other observers said that Cavanagh’s move to a private equity giant like Carlyle underscored a recent trend of bankers moving to PE shops because of increased bank regulation and the fact that PE’s where the money is.
Although it’s true that many big swinging bankers have recetnly left the banking industry for literally greener pastures in PE land, this is no new trend. Top PE executives have always made more bank than top bankers. But it is true that now, in the wake of the financial crisis, with banks falling out of favor with Capitol Hill and Main Street alike, that the prestige and power that once came with being a top banker is dwindling. And so, like Cavanagh, there will continue to be many big swingers who’ll be taking the money and running—far away from the bulge-bracket behemoths to the PE and hedge fund giants of the world.
To give you an idea of just much more money can be made at the top of a large PE firm org chart versus the C-suite at a bulge bracket bank, consider the following (which DealBook points out):
The three founders of the Carlyle Group received $750 million for their work in 2013, while another private equity titan, Kohlberg Kravis Roberts, gave its co-founders more than $160 million each for 2013. The hefty payouts dwarf the compensation at banks, including JPMorgan, where Mr. Dimon received $20 million in total compensation for the same year.
It should also be noted that it’s not so easy to pocket all those PE millions. Cavanagh beat out more than six dozen other high-ranking executives to land the job of co-president of Carlyle. And the interview process lasted half a year.
Carlyle worked with an executive search firm in a six-month process in which it considered more than 75 names for one of the co-president posts, a person briefed on the matter said. Before Mr. Cavanagh’s name was floated, he was not widely known inside Carlyle.
As for Jamie Dimon and JPMorgan’s next move, it seems that the first order of business should be to figure out how to better retain their top talent. As BusinessWeek pointed out, “A 2008 Fortune magazine story about JPMorgan’s leadership included photographs of Dimon’s 14 top lieutenants. Today, just three of them remain.”
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JPMorgan’s China Investment Banking CEO Fang Fang to Leave Firm (Bloomberg)
A Likely Heir Is Leaving JPMorgan Chase (DealBook)
JPMorgan Loses Potential Successor to Dimon as Cavanagh Quits (BusinessWeek)
For Carlyle, Recruiting an Outsider Is Not Unusual (DealBook)
How to Avoid #AskJPM and Other PR Nightmares (Vault)