Goldman Sachs keeps hiring senior outsiders, and its aspiring MDs are worried

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It's an "MD" year at Goldman Sachs. Once every two Novembers the firm promotes a new round of managing directors after a complex process known as "cross ruffing" in which executive directors on the list for potential promotion are validated (or not) by current MDs behind closed doors. Goldman insiders say the 2017 MD selection process has already begun, and that its commencement is being greeted with more trepidation than usual.

"There's a lot of excitement about the MD selection this year because of all the big external hires," says one Goldman executive director (ED). "A lot of people here are fearful they'll be overlooked as a result."

The latest of these big external hires, which has so far gone unreported, is Penn Egbert, a former MD and head of global markets research for the Americas at Nomura. Egbert (seen here at a drinks party with Megan Kelly in 2010), joined Goldman as co-head of Americas equity research in September.

Egbert isn't the only big recent hire. For a bank that used to grow its own, Goldman has been doing a lot of stealing from its rivals. Earlier this month it poached Marcelo Pizzimbono (admittedly a former GS employee) from Deutsche Bank; Pizzimbono is thought to have gone in as an MD. It also hired Mike Blum from KCG as a partner in its electronic trading business. And in September it made some MD level hires in compliance.  The external recruits matter because Goldman said three years ago that it was top heavy and wanted fewer MDs: either the pyramid has now been reinstated, or Goldman's decided that it would rather hire its MDs from elsewhere than promote them internally.

Fears about the latter are also being fueled by Goldman's miserable results. The firm may get some respite when it reports its third quarter numbers tomorrow, but the omens are not good; analysts at KBW are predicting a 40% decline in Goldman's fixed income currencies and commodities (FICC) revenues year-on-year (versus a reported 16% decline at Citi).

Goldman insiders say word has already gone round that FICC will be "punished" and that promotions of FICC MDs will be kept as low as possible.

By comparison, the expectation is that technologists and so-called "strats" (the quants who work with Goldman's technologists), will do well in this year's MD promotions. Last time Goldman promoted managing directors, in 2015, 135 technology, compliance and internal audit professionals made the cut. This year, technologists in particular should benefit. It helps that Marty Chavez, former CIO, is now at the very top table as CFO, plus there's now a deeper bench of technology MDs to vouch for them.

Unlike investment bankers and traders, however, Goldman's technologists don't appear fixated by their promotion potential. "Most people are focusing on regulatory work and coming deadlines rather than the MD promotions," one ED informs us.

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