Jes Returns to his Roots: Private Partnerships on the Rise as ‘Financial Supermarkets’ Slide

18 months ago, Mr Jes Staley was being groomed to be Jamie Dimon’s successor at JPMorgan. Three months’ ago, Mr Staley somehow fell by the wayside as other, younger suitors gained favour as Dimon’s successor. This is not unusual in the power politics of large banking organisations and Mr Staley’s departure from JPMorgan, announced this week, was to be expected.

The unusual aspect of Jes’ resignation is that he elected to join a small hedge fund instead of seeking the helm of another financial supermarket competing with JPMorgan. Moreover, Jes is buying a stake in the operation, Blue Mountain, with his own money rather than being welcomed gratis.

What does Jes bring to Blue Mountain? Jes is not a superstar investor, nor is he a rainmaker salesman. His career at JPMorgan was largely in organisational planning and the machinations of internal decision making. These are hardly valuable skills to a small hedge fund operation. One valuable skill that Jes does have, however, and I know this first hand, is VISION.

The ‘vision thing’ in this instance is expressed by his action. For Jes, the days of the big bank financial supermarket are numbered. The promised synergies that were to follow from the merger activity over the last 20 years have not materialised. Instead, clients have been let down by their trusted banking brands (i.e. ripped off), senior management have lost control of sprawling organisations, scandals have been unearthed and punished (market rigging, illegal dealings), compensation is under attack and zealous regulation is targeting the biggest names in finance.

At the same time, however, the financial sector as a whole is still vibrant owing to the fact that people are still getting rich and somebody is needed to manage their money. For instance, the share of the Financial Sector in GDP in the US in 2012 is 5% (versus 5.6% in 2007 at the peak of the boom), while countries like Singapore have seen the Finance Sector grow from 11.2% to 12.1% over the same period.

The Finance Sector is going through a transition. Big institutions are losing ground to small, privately held entities staffed by the talent that walks out the door of the big banks every night and, one-by-one, decide not to come back the following day. Jes Staley is one of these people. As these small entities grow, their culture will change from brash upstarts to dignified partnerships, just like the JPMorgan of old, before the umpteen mergers, and of which Jes Staley was originally a product. This is the value Jes brings to Blue Mountain.

Jes is going back to his roots. This is the vision of the future.