BOSTON (May 18, 2010) — It's no secret the general public is furious with Wall Street. What's more surprising is the vitriol coming from big clients who've traditionally buttered the financial industry's bread.
The ire was on full display at the CFA Institute's annual conference in Boston, where about 1,600 executives from mutual funds, pension funds and other big investment outfits gathered. Jeremy Grantham, co-founder of GMO, which manages $106 billion in assets, set the mood with remarks titled, “The Ethical Hole in Finance.”
“It has become a rogue industry,” Mr. Grantham said in slamming the banks and brokerage firms that execute his firm's trades. “Today, the ethical standard is: Don't go to jail if you can possibly avoid it.”
Mr. Grantham, long known for his pessimistic views about the market and its participants, called on his fellow investment professionals to direct more business to the “most ethical firms,” which he defined as banks or brokers that don't exploit information gleaned from clients by trading for their own accounts.
Yet Mr. Grantham said he understood why such a change may be difficult to achieve. For one thing, the more ethical firms may charge more than their less scrupulous rivals, which could raise questions about whether investment managers trying to do the right thing are, at least in the short-term, doing best by their clients.
“Shame on us,” Mr. Grantham thundered to a hushed audience. “We have allowed the deterioration in ethical conduct to take place. We have made no fight as we slid down the rathole.”
The anger at Wall Street banks even has some of the street's more successful alumni thinking about whether to tout their backgrounds.
For example, a board member of the CFA—a Charlottesville, Va.-based global, nonprofit organization of investment professionals from more than 100 countries worldwide—dryly asked Clifford Asness, a well-known hedge fund manager and speaker at the conference, whether or not his background as a mortgage trader at Goldman Sachs should be included at his introduction.
“You know what the world is coming to when he asked me if I'm comfortable mentioning that I worked at Goldman Sachs,” Mr. Asness observed.
This report appeared in Crain's New York Business magazine, a New York City-based sister publication of Tire Business.