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

Social capital can be accumulated by helping others and building goodwill. For instance, people can leverage their contacts and influence for the benefit of someone else or arrange for direct access. Perhaps unsurprisingly, the ultra-capitalist superhubs are as rich in social capital as they are in relationships, and in network commodities that they can exchange. In a sense, social capital serves as a vehicle for the transaction of other network commodities such as money and information.

The exchange of social capital is particularly important in the top ranks of finance, but sometimes the equation does not quite add up. At the height of the financial crisis, Goldman Sachs’s clients worried that bank contagion could spread to the firm and render it insolvent. As a precaution they began to withdraw money in droves. A sentiment began to spread within Goldman that it usually instilled in others: fear. Gary Cohn, Goldman’s copresident, personally tried to convince clients to keep their money with the firm. When Stanley Druckenmiller, George Soros’s former star trader who then managed $3.5 billion of his own, withdrew his money, Cohn tried to activate the social capital he had built with Druckenmiller over the years professionally as well as personally and asked him to return the money to the bank. Druckenmiller refused, which prompted Cohn to respond that he was making lists of his friends and enemies—and that Druckenmiller’s lack of support would change their relationship for a long time.30 By not projecting his confidence in Cohn and Goldman, Druckenmiller not only withdrew all his financial capital, but his social capital as well.

MONEY + INFORMATION + SOCIAL CAPITAL = INFINITE OPPORTUNITIES

Through their networks, the financial elite are ideally suited to create circumstances favorable to advancing their interests. Opportunities are both the cause and the effect of inextricable links between people, money, and information—with social capital serving as a conduit. They are also subject to power laws, according to which the more you have, the more you get. The sociologist Robert Merton described this phenomenon as the “Matthew Effect,” since Matthew states in the Bible, “For unto every one that hath shall be given, and he shall have abundance; but from him that hath not shall be taken away even that which he hath.”31

The more quality connections you have, the greater your access to additional connections, capital, and information, which in turn leads to more opportunities. These properties—social capital, financial capital, and information—are interdependent, meaning that the more you have of one of them the more you can get of the other.

George Soros had the prerequisite network, capital, and information to bet on the British pound, a trade that is rumored to have netted him a $1 billion profit. His global connections, especially in the political realm, provided him with information that was not generally known. Because he had access to so many pieces of the puzzle, he was able to zero in on the opportunity and convert his insights into monetary gain. Of course Soros is brilliant, but speculation is always, at least in part, based on information. The better the network, the better the information; the better the information, the better the analysis; and the more money bet, the more profit yielded. In 2016, Soros’s net worth amounts to $24.9 billion.

Larry Fink, founder of BlackRock, has created sophisticated, world-leading risk analysis systems that build upon existing information to yield even more valuable insights. Beyond merely having access to information, he produced new information, thus becoming an information hub. The more sophisticated information he produced, the more capital he attracted, the more his network grew, and the greater his opportunities became. In 2015, BlackRock managed $4.72 trillion.

When Steve Schwarzman cofounded Blackstone with former U.S. treasury secretary Pete Peterson, they were able to convert Peterson’s network of CEOs and senior policy maker contacts into deal-making opportunities. The information that their network yielded, greatly contributed to Blackstone’s success. The firm has seen its assets under management rise to over $344 billion in 2016.

Bill Gross, founder and former manager of PIMCO—the world’s largest bond fund—capitalized on his close network connections to the Fed, which provided him with valuable information, creating better opportunities, which in turn attracted more capital. When Gross joined Janus Capital in 2014, he was able to raise $1.4 billion from his network during the first year.

If Anthony Scaramucci had not had access to Citi CEO Vikram Pandit, he would not have learned of the opportunity to acquire Citi’s hedge fund portfolio at a discount, thereby growing his fund and attracting further capital. In 2016 SkyBridge’s assets under management stood at $12.6 billion.

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In Chapter 3, we have seen that the access to people, money, and privileged information provides an invaluable advantage, as it opens up unique business opportunities inaccessible to those outside of this exclusive circle. But what exactly creates these superhubs? How do some people wind up on a trajectory that catapults them into the career stratosphere? In Chapter 4, we’ll take a closer look at the superhub personality profile and the important characteristics that set them apart to succeed.

CHAPTER 4

The Matrix

Decoding the Superhub DNA

INDIVIDUAL CHARACTERISTICS ARE IMPORTANT in the financial universe because while financial capital creates the links that connect superhubs within a network, it is ultimately the superhubs themselves who decide how capital is created, transacted, and invested. Personal traits and skills are the drivers that propel players into the center of networks. There are countless successful people, but only a few reach the pinnacle of power where they operate the very levers of the financial system. What are the essential characteristics of superhubs that lead them to become so well connected? In this chapter, we will explore their most common traits and skills.

THE ALPHA PERSONALITY: JAMIE DIMON

Superhubs are extremely competitive and continuously challenge themselves to take the lead and stay ahead of the game. Their innate desire to have impact and power, and to leave a legacy, is either driven by an extremely strong self-confidence or by deep insecurities that cause them to overcompensate in an effort to prove themselves. The quest for power on the most basic level is fueled by the need for survival. The motivation to acquire it is correlated with high testosterone levels,1 sand its possession is shown to cause pleasure-inducing neurological responses. In addition, power provides control over one’s life, which demonstrably increases happiness, health, and life expectancy. The quest for power is an indispensable aspect of the superhub personality.

On a busy fall day in New York, Nouriel Roubini and I met with Jamie Dimon for an exchange of thoughts on his turf, JPMorgan’s world headquarters at 270 Park Avenue. After registering with security and passing through the vast, high-ceilinged marble entrance hall, we were accompanied to the secluded Holy Grail: the executive floors at the top of the building. Dimon welcomed us in a bright, modern conference room with breathtaking views of New York City. Roubini’s and my stance on big banks had been rather critical, and I had the distinct feeling that Dimon had planned a charm offensive to convince us otherwise. He dominated the room with a highly amusing, profanity-laced monologue. The conversation was not particularly profound, and we gained no new insights, but by the end of the meeting I felt that Roubini was quite taken with Dimon. I was left with the uncanny sense that if Dimon wants to accomplish something, he will find a way to psychologically arm-wrestle his counterpart until he prevails.