Sandra Navidi - SuperHubs - How the Financial Elite and Their Networks Rule our World

Human superhubs can often be easily recognized. You can literally observe network science in action when they enter a room: All those other nodes in black suits automatically turn toward them like magnets, eager to connect. Soros is the quintessential financial superhub, with countless strong connections to powerful people and institutions and broad influence through his words and actions. Any other node in the network would be ecstatic if they could develop a connection with George Soros. Why? He, like all other superhubs, has status and access that he can transfer to others.

In any human network, the value of a person’s position is determined by the number and the quality of his connections. In the global financial system, a central network position has actual economic value,15 and your network is quite literally your net worth. Their high connectivity, access, and status gives superhubs unique power to capitalize on opportunities by cross-fertilizing and executing profitable ideas. That power makes connecting with them desirable, because status can be transferred by association and, thus, be leveraged to further one’s interest.

Network Geography: Location Matters

Status is an intangible and somewhat imprecise unit of measurement of an individual’s rank or position in society, largely based on other people’s perceptions. It reflects prestige, authority, and dominance and represents the influence and power a person has in the community relative to others. In fact, studies on how our brains process certain rewards reveal that we may value social standing more highly than monetary rewards,16 and being respected makes us feel good. Status has economic value as well; it can be transacted to acquire other things of value such as favors, information, and promotions. Superhubs may bestow status by association on others, because they like and trust them, feel that they are a good complement to them in some way, or that they can help them realize their interests. Improvement of position in a network and an increase in status are synonymous.

The very concept of status implies hierarchy. Hierarchies are an outflow of evolution, because structured groups operate more efficiently than egalitarian organizations. Hierarchical structures encourage high-ranking individuals to spend effort and energy competing with their peers, which creates progress that benefits everyone. The work of those at the top is essential to the success of their communities or organizations—and that positive influence gives them status.17 As we moved from agrarian societies to industrial ones, social hierarchies became organizational hierarchies. Today, prestigious job titles such as CEO or chairman are status markers, and achieving higher professional positions is one of the most direct ways to increase your status.

Another way to gain more status is to increase your wealth. During the course of the debt-fueled global growth over the last thirty years, the status resulting from jobs that carry a social value—such as the medical or educational professions—has been overtaken by the status money provides. People in finance have made increasingly more money and seen their status rise as a result. Salaries in the financial industry are typically significantly higher than salaries in other sectors. Executives can capitalize on those salaries through rent-seeking—returns on ownership rather than from labor or production—as they have access to investment opportunities to put that money to work for them.

Location: Reputation Matters

Reputation is an important facet of status, reflecting integrity and competence. We automatically assess other people based on their reputations and consider good character a precondition for doing business.

In the world of high finance, a stellar reputation within the industry is an indispensable requirement to becoming a superhub. Yet what might seem reputation-destroying to many of us sometimes appears not to matter much in the business world. Jamie Dimon, CEO of JPMorgan, oversaw the loss of $6.2 billion, yet his reputation as a competent leader in global finance did not suffer. A larger-than-life reputation tends to become self-sustaining due to a cognitive bias known as the “halo effect,”18 in which everything an individual does is viewed through the frame of his assumed excellence. In other words, once opinion leaders in the network deem someone to be extraordinary, the network assumes it as an eternal fact. Even in the event of a massive failure, the superhubs’ tight network connections often prevent peers from falling through the cracks.19 Loyalties and social capital are a strong base on which relationships are cemented, and most of the executives who lost their jobs during the financial crisis later resurfaced elsewhere.

Reputation: Access Matters

Anthony Scaramucci, the youthful, sunny founder of SkyBridge Capital—who bears a resemblance to life coach Tony Robbins—leveraged the access he found at Davos to make the move of his career. In 2010, in the corridors of the Belvédère Hotel, Scaramucci, a relative newcomer by Davos standards, engaged in a dialogue with Vikram Pandit, then CEO of Citigroup. He convinced Pandit to sell him Citi’s $4 billion portfolio of hedge funds, which overnight brought SkyBridge’s assets under management up to $6 billion. It was a coup that would not have occurred if he had been unable to converse with Pandit. This is precisely why access is so important.

Scaramucci has the quintessential megawatt smile and exudes sweeping enthusiasm in everything he does. He grew up in a working-class family on Long Island and, after graduating from Harvard Law School, joined Goldman Sachs—the source of many financial superhubs—before starting his own investment management firm. Several years ago, he finally landed a coveted invitation to the WEF, where I first met him. His folksy, backslapping, high-fiving demeanor is not everyone’s cup of tea, but those who dismiss him grossly underestimate his intelligence and strategic prowess.

Scaramucci is a talented schmoozer with a knack for self-promotion, yet his consistent energy makes it all seem authentic. He cleverly product-placed a large SkyBridge banner in Oliver Stone’s Wall Street II, and even landed a cameo. He further enhanced his profile with his well-received book, Goodbye Gordon Gekko, which was a timely self-critical reflection on Wall Street’s culture of greed. His rise has been extraordinary, and Davos has played no small part in it.

While many of Scaramucci’s most valuable contacts stem from the WEF, he has since spread his wings far beyond the WEF and built his own wildly successful forum, the SkyBridge Alternatives Conference (SALT). Within only a couple of years, SALT has become the premier hedge fund gathering in the world. This no-expenses-spared event features the best speakers (Bill Clinton, George W. Bush, Nicolas Sarkozy), the best parties—the best everything. A vital part of SALT’s success is based in Scaramucci’s deep relationships and alliances. Hedge fund titans such as Steve Cohen, Ray Dalio, and David Tepper genuinely like and trust him and lent their support as he established SALT.

Scaramucci’s network position, like that of every superhub, provides him with a most coveted and valuable asset: access to any other superhubs. Having calls answered, emails read, and the ability to obtain meetings is the decisive first step to achieving any business goal. The most senior people in the financial world, who are inundated with requests, carefully allocate their most precious and finite resource—time—to those they like and deem important to their own interests, particularly other powerful people. Building and maintaining a large network is challenging—the larger the network, the greater the time and effort required. So superhubs prioritize quality over quantity and discriminate.20 According to “Dunbar’s Number,” our minds only have the cognitive capacity to retain approximately 150 true connections or relationships.21 This natural limitation makes access all the more valuable. The concept of Dunbar’s Number is widely recognized in business circles, particularly in client-oriented professions.