Ken Moelis Gives His Bankers Blessing to Move Wherever They Want
(Bloomberg) -- At first it was just one. Then another and another and another until some 20 bankers had told Ken Moelis they wanted to pack up and move to Florida. His answer: OK.
“We’re a talent business,” Moelis, the chairman and chief executive officer of Moelis & Co., said in a Bloomberg “Front Row” interview. “I want to attract, I want to motivate and I want to retain the greatest talent in the world. And if that talent wants to do it in Florida, that’s where we’ll support them.”
While New York will remain his firm’s headquarters, a place to collaborate, to build camaraderie and to nurture new recruits, Moelis will consider opening or expanding offices as staff relocate. He expects they’ll move to cities where tax rates are lower, the climate is warmer and government is friendly to business.
Such is the new reality for Wall Street. One early lesson of the pandemic, as Morgan Stanley CEO James Gorman noted in April, was that banks will require “much less real estate” thanks to the surprising success of remote-work arrangements. But broadly the assumption was executives would return to the traditional centers of high finance once vaccines are widely available. Now that’s unclear.
Moelis won’t be the last investment-banking boss to bless an exodus. Attracting and retaining rainmakers in such a competitive industry has always meant paying top dollar and matching perks such as first-class airfare and five-star hotels. Where they get to live could become as much of a deciding factor.
Decentralizing forces are at work across Wall Street. The largest banks were shifting back-office jobs to cheaper locations well before the pandemic, and hedge fund managers were decamping for Miami. More recently, as Bloomberg reported this week, Goldman Sachs Group Inc. scouted for offices in South Florida ahead of a potential relocation of part of its asset-management business.
Moelis & Co. hasn’t decided if or where it might add space to accommodate dealmakers. That depends where they go, and many will end up working from home.
“I’m actually going to facilitate where the people want,” Moelis said. “The Northeast likes Florida, California has chosen Texas.”
Moelis started his career in 1981 working for Michael Milken at Drexel Burnham Lambert and went on to senior roles at Donaldson, Lufkin & Jenrette and UBS AG before founding his Moelis & Co. in 2007. For someone steeped in the traditions of Wall Street, Covid-19 “really did change everything,” he said.
In March, as the virus was spreading and the stock market was collapsing, he remembers being in the backyard, pacing back and forth while disaster planning on the phone with his executive committee. The firm immediately cut its dividend in half, conserving cash and preparing for the worst.
But as the economy stabilized, dealmaking roared back. The biggest revelation for Moelis was how productive his 128 managing directors could be working on Zoom instead of traveling to meet clients. Moelis & Co. has landed $72 billion of announced mergers and acquisitions since June 30, more than five times as much as in the first six months of the year.
“We all woke up and said, ‘Wow, you mean we could have done this without flying 20 hours and drafting a document in a room together?’” he said in the interview from his home in Beverly Hills. “This is a moment of enlightenment.”
Right now, with everyone grounded, Moelis & Co. is saving about $30 million a year. Once it’s practical to fly again, Moelis said he expects his staff to travel at least a third less often than before the pandemic, and possibly only half as much.
Covid-19 is shaking up finance beyond the workplace. As stock trading booms and investors put a premium on growth, special-purpose acquisition companies have emerged as one of the hottest products on Wall Street. Moelis himself is chairman of a $500 million SPAC, Atlas Crest Investment Corp., and he thinks the combination of blank-check vehicles and virtual-communication technology will revolutionize the business of raising capital long dominated by big banks.
“Sitting at home in front of my computer, I can probably reach 90% of the asset base that a large trading floor can. Why not do it that way?” he said. “That’s going to be a big story over the next three to five years as people realize the same thing Uber and Lyft did to owning a car. We might be able to do that, and I think we can do it, to the big trading floors.”
Banks may suffer losses, too. Moelis expects the pandemic will, as many crises have, expose their balance sheets as a “library of past mistakes.” Moelis & Co., he points out, is debt-free.
On a personal level, Moelis, who favors low taxes and light regulation and who predicted Donald Trump would win the presidency in 2016, is angry about the inconsistent ways public officials have handled the pandemic. In the interview, he called out California Governor Gavin Newsom for “hypocritical things” such as a widely criticized November dinner at the French Laundry restaurant in Napa Valley and questioned why New York Mayor Bill de Blasio can “shut down free-market enterprise on a whim.”
Echoing concerns raised by other CEOs such as Barry Sternlicht, who moved Starwood Capital from Greenwich, Connecticut, to Miami in 2018, Moelis said restrictions on economic activity raise the cost of capital for business owners and add a “risk premium.”
“I know New York City will survive, I just don’t want it to be another decade before it comes back,” Moelis said. “The more you send the signal that we’re capital and tax unfriendly, the longer it’ll take for somebody to come back and restore New York City to where it was.”
A big decision looms for Moelis in the next few years: whom to name his successor. Now 62, he doesn’t intend to retire, just step aside from overseeing the firm and devote more time to clients. Initially, he intended to name a new CEO, possibly a woman, well before he turns 65 in 2023, but the pandemic pushed things back.
“This has been kind of a lost year,” he said. “I mean, we’re booming in terms of deals, but not everybody’s in the same room.”
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