Jefferies HY Grows through the Market Pain
June 10, 2009
Midmarket investment bank Jefferies has continued to grow in the wake of the i-bank shakeup that still reverberates through the financial markets.
Robert Harteveldt joined Jefferies last summer after more than two decades at Bear Stearns, where he had most recently served as head of high yield, distressed and loan sales. He is chairman of fixed income and a member of Jefferies’ executive committee. Since his addition, the firm has hired nine sales professionals, seven research analysts and one trader, with more additions yet to come. The distribution team Harteveldt heads up now totals 50 people.
LeveragedFinanceNews.com recently spoke with Harteveldt about how he sees the recovery in the primary loan market, how his group is planning to expand, and how holdout leveraged finance groups will continue to integrate their bond and loan groups.
LFN: What is your end goal for Jefferies’ expansion? Where do you see your staffing levels by the end of 2009?
Harteveldt: We haven’t decided the exact number. We will continue to grow as the market sees fit, and we continue to gain market share. … At this point we’re looking for a senior loan sales person. … Primary [loan] issuance will pick up at some point. Right now there’s a movement afoot to take out banks and go with more flexible financing in the high yield market, which has more of an appetite at this point than the loan market. But for the well structured deals, there’s definitely an appetite in the [loan] issue market for those.
Do you have plans to open any new offices or expand your group’s geographic focus?
We’ll be building out the loan business London. That’s the only other expansion that we’ll do. In London we’ll be hiring at least one trader and probably two sales people. We have an office in London already.
What have been the biggest challenges in transitioning people from different shops into Jefferies?
There really haven’t been. One of the factors in determining who the right people were to hire was determining who had the right characteristics to make the shift seamlessly. The people we’ve hired have worked out perfectly because they understood the entrepreneurial environment and have succeeded beyond our expectations so far. … They have deep credit knowledge, have extraordinarily strong relationships, are very senior, and generally were one of the top one or two sales people or traders at their firms. The most important characteristic of all of them is that they’re extraordinarily well regarded by their customers in the marketplace. And as I did my due diligence the marketplace substantiated that they would fit in very well at Jefferies. And that has panned out correctly.
Is your group at Jefferies structured differently than the group at Bear Stearns?
It’s fairly similar. It’s an integrated business platform. … The loan business is integrated in the high yield department.
Before the markets went haywire, banks were merging their loan and high yield bond groups. Do you expect this will continue?
Most firms that still have private groups and keep them segregated from their high yield groups are examining whether that should continue or not. Some firms have transitioned from the public/private model to a more public model, and others that haven’t are examining whether they should maintain that status or integrate into one public model. Each firm will make that decision on its own.
What led you to favor the more integrated model?
It’s the optimum way to serve the customer. There are fewer and fewer customers that need private side coverage. It allows us to provide research across the breadth of the platform. We have 24 sales people supporting our bond and loan operation.
What are the biggest differences between your group at Jefferies today and your group at Bear Stearns as far as the structure?
We’ve created a broader platform than we had at Bear in terms of numbers and breadth of distribution. The biggest difference is that we have broader research coverage than we did at Bear, and a slightly larger distribution than we did at Bear.
Do you anticipate Jefferies will be a lead underwriter on a larger share of deals?
We expect to increase our market share on the loan product on the primary side … same on the bond side. … We’re seeing more opportunity right now, and more companies are talking to us than ever before as the landscaped has changed. We’ve brought in bankers that have broadened our relationships on the banking side as well.
How will the new universe of smaller investment banking groups make their mark on the market?
Over the long term they will have a minor influence on the marketplace. … I don’t think they’ll have that much influence. They don’t have capital, number one, and that’s the biggest differentiating factor. There are a number of customers that won’t trade with them, so there’s a limit to the actual breadth of their distribution. Those are probably two of the bigger distinguishing factors. … They’ll be players in the business. I don’t think they’ll be major players in the business. … That’s not who we are competing with.
What is the most positive trend you see developing now in fixed income?
The most positive trend is liquidity returning to the marketplace. The positive thing for us is the market recognizing the success of our build-out and our success in building market share and reaching a broader share of the market.
What is the most negative trend you see developing in fixed income?
The biggest concern is the overall fear of inflation and the underlying global economy. … The thing that would concern me is if others were irresponsible with their capital, but I don’t think that’s too much of a concern. I think everybody is being very prudent with it.
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