Chapter 25: A New Client

December 19, 1983, Chicago, Illinois

Late on Monday morning, I went to see Mr. Matheson.

“There’s a good chance I’ll need to start my time off this week,” I said. “I can’t predict when, but it’s close.”

“Just call me and let me know. Nobody will say a word.”

“Thank you.”

I returned to the Research Department, picked up the telephone handset, and dialed Hart-Lincoln. I asked for Nelson and was transferred to his assistant, who put me through right away.

“It’s Jonathan. Do you have a few minutes?”

“Yes. What can I do for you?”

“Is there anything I need to do with regard to Keiko?”

“Before I answer, how close?”

“Nobody can say for sure, but I’d say a week to ten days. Her blood oxygen levels are barely OK, and that’s with high-flow oxygen via mask.”

“I know I’ve said it before, but I’m sorry.”

“Thanks.”

“Does Keiko have a will?”

“No.”

“Because you’re married, intestate estates automatically go to the surviving spouse. Does she have any assets of her own besides personal belongings?”

“Her car.”

“It will be your property, so you’ll need to take a copy of her death certificate to the Secretary of State’s office and have the car retitled in your name. You should also take her driver’s license with you and fill out the form to cancel it. For your joint bank account, you’ll take the death certificate to the bank. More than likely, they’ll create a new account in just your name with a new account number. You’ll need to make sure Spurgeon knows the new number. I’ll handle the paperwork for Yuusuke Holdings, but I’ll need a copy of the death certificate before I can do that. You should also give one to Robert Black.”

“There’s no probate or anything like that?”

“Generally speaking, not for a spouse. Does she have any debt?”

“No. Her parents were paying for school, including room and board, and the car was paid off as of July.”

“You’ll also need to cancel any credit cards in her name. Did she work at all?”

“No.”

“I’ll send a letter to the Social Security Administration with a copy of the death certificate so that nobody can reuse her Social Security Number. I think that covers it, but obviously, things can come up. If they do, call, and we’ll solve them.”

“Thanks. I appreciate the help. One more thing — I’d like to draw up a will and various powers of attorney.”

“Who?”

“I think, at this point, it has to be Bianca Pérez. Like Keiko, I don’t want what Doctor Morrison called ‘heroic measures’. I also want to be cremated and interred next to Keiko in her family’s crypt at Montrose Cemetery.”

“Beneficiaries?”

“A hundred grand to my mom, and the rest in a trust for my daughter. All my assets can be liquidated for cash. You’d be the trustee, and the money should be invested in the Spurgeon Select Fund.”

“How do you want it disbursed?”

“I’m not up to speed on that part. What do you recommend?”

“Given your assets and the fact that Bianca works, $1000 a month to her for the benefit of your daughter. When your daughter ... what’s her name going to be?”

“Sofía.”

“When Sofía turns eighteen, the payments would go to her. She could use the trust for tuition and other college expenses, and then at age twenty-five, the balance is paid to her, and the trust would terminate.”

“That sounds good.”

“Last question — executor and power of attorney?”

I thought for a moment.

“Make my Uncle Alec the executor, and Jack Clinton should have power of attorney.”

“Only on incapacity or death, right?”

“Yes.”

“I’ll run it by someone in trusts and estates, then draw all of that up. You can sign everything after the first of the year.”

“Thanks.”

We said ‘goodbye’, I hung up, then sat quietly for about ten minutes thinking about Keiko.

My phone rang, interrupting my thoughts.

“Research; Kane.”

“Jonathan, it’s Joel Steinem. Your AUD sell executed in full at 0.901. You’ll see it on your screen, but I figured you wanted to know immediately.”

“I did. Thanks.”

I pulled up my spreadsheet, entered the trade, and saw that my overall gain on the AUD trades was just under $2.5 million. I logged onto the mainframe, ran a portfolio analysis, and was very happy with the result — a total return for the year of 39.2%, with only five full trading days remaining, plus two half-days. There was little chance of a major market move, so my final number would be very close to that number. Of course, that total return was on dollars invested on the first day the fund was active, so the adjusted return was quite a bit lower, given significant capital had flowed in later in the year.

I checked the Nikkei closing, and the 225 had closed at ¥9484.17, up from ¥7291.47 when I’d purchased my first index options. If that trend continued, I’d be in very good shape for what was shaping up to be a rough year for the US economy, something that might actually cause Reagan to lose to the Democratic nominee, most likely former Vice President Walter Mondale.

In looking at the Nikkei futures, I decided to make additional changes in my portfolio, selling bonds and buying shares in a Nikkei 225 index fund rather than futures options, as the options were pricey and would mean forgoing a good percentage of the potential increase, as some of that was built into the options, which was the norm. I moved what would be the maximum for my fund, given the investment strategy documents.

It was late December, but I still had an opportunity to modify my strategy document for 1984, so I changed it to specify ‘overweight’ for stocks in the Nikkei 225, as well as for both index shares and index options. That would give me a much freer hand in the percentage of my fund that could be invested in Japanese securities.

When I was satisfied with the changes, I printed it out and hand-carried the printout to Kendall Roy in Compliance. He promised to review it immediately so that it could go out with the annual report in January. I thanked him, wished him ‘Merry Christmas’, and then returned to my desk. I spent some time reviewing the day’s Wall Street Journal via Dow Jones News, then had lunch with Bianca. After lunch, we went to the gym, then returned to the office.

The afternoon was fairly quiet, and at 3:00pm I left the office, but rather than going straight home, I walked to a coin dealer and bought five one-ounce silver coins, which would be used during Keiko’s funeral. I walked down the street to a jewelry store and bought a fairly heavy silver chain so I could eventually wear Keiko’s wedding band. That accomplished; I headed home.

Keiko’s blood oxygen levels were still hovering around 89%, but her urine production was down, which meant she was being given Lasix. That was one of the signs Doctor Morrison had pointed to — reduced urine output — and was a portent of potentially rapid decline. Both Keiko and I knew it, and nothing specific was said between us. We cuddled both before and after dinner, and when Kelly arrived, she administered Versed. Once Keiko had fallen asleep, I went to sit with Jack in the great room.

“Where’s Kristy?” I asked.

“Last-minute Christmas shopping with her little sister. How are you doing?”

“Hanging in there,” I replied. “We haven’t talked enough recently.”

“You have to focus on Keiko,” Jack said. “I totally get that.”

“How are things in the mailroom?”

“All good. Did you hear that Al Frost quit?”

“Mark Benton’s runner? No, I didn’t.”

“He gave notice today,” Jack said. “I’m going to ask Mr. Benton for the job at Christmas dinner.”

I nodded, “A smart move. I’ll back you, obviously, but I can’t imagine Mark turning down a request from his son-in-law!”

“Me, either, but you never know. Kristy is confident.”

“The only way that wouldn’t happen is if Noel Spurgeon said ‘no’, and I can’t see that happening.”

“Jack Nelson is going to be pissed because he’ll have to replace me.”

“O’Day?”

“He could do it, but Kasparov is better. You know the problem there. Other than Mandy Peterson, there are no women in supervisory positions. Heck, the sole female trader quit four months ago because she couldn’t stand the corporate culture.”

“If you think Naomi is the best choice, tell Jack Nelson clearly and firmly why you think so. In the end, he’ll have to decide, but every interaction I’ve had with Naomi has been positive, and she’s not anything like Paige Jennings.”

“I’ll think about it and decide once I speak to Mark Benton. How did your currency trades work out?”

“Very well. I exercised my calls at the bottom, then bought more, all of which I sold today. I cleared around $2.5 million. My rough estimate for the FX Desk was about ten times that.”

“Did you beat Matheson?”

“Yes, but it’s not really a fair fight because he has to include all his currency trades made on behalf of clients, which don’t have the margins of the speculative trades. Without those, he’d have beaten me. I might beat Noel Spurgeon, but it’s a close thing.”

“Pretty fucking amazing! You really do need to run your own shop so you can keep ALL the management fees and capital gains instead of sharing them with Spurgeon!”

“One step at a time,” I replied. “As we discussed, I need to raise more capital, and that’s been a struggle. I had some initial success with the law firms and the unions in Wisconsin and the trust manager, but so far, no other takers.”

I heard the phone ring, and Juliette came into the great room.

“Jonathan,” she said, “your mom is on the phone.”

“Thanks.”

I got up and went to the kitchen to take the call.

“Hi, Mom. What’s up?”

“First, how is Keiko?”

“Sleeping most of the time. I’d say a week to ten days.”

“I’m so sorry. Please let me know the arrangements when it’s time.”

“I will.”

“Would you mind if I brought Mitchell to Chicago?”

“I’m going to assume that’s your judge?”

“Yes. Mitchell Pierce. We’d stay at a hotel instead of with Violet so as not to impose on her.”

“One room or two?” I asked mirthfully. “Or connecting rooms, to keep up appearances?”

“That’s none of your business, Nosy Nate!” Mom said, laughing.

“I’ll take that as either one room or connecting rooms,” I chuckled. “He’s more than welcome. We’re having ham for dinner, so please tell me he’s not Jewish.”

“He was raised Presbyterian but doesn’t go to church except occasionally.”

“More than I needed to know, but that’s probably a good thing. I did arrange things with Uncle Alec and Aunt Wendy for the 26th. It’s unlikely Keiko will be able to participate.”

“Have you been in touch with your grandparents?”

“No. I felt the ball was in Grandpa’s court, and I wasn’t going to press the issue. Keiko’s going to have a Japanese funeral, which is Buddhist, so inviting your dad is a pointless exercise. He boycotted the wedding, and I doubt he even knows Keiko is ill. Well, it’s possible Alec told him, but I don’t know.”

“How is Bev?”

“I haven’t spoken to her in a few weeks, but last I did, she and Glen seem happy and Heather is healthy.”

“And work?”

“Making money hand over fist, as the saying goes. Do you still plan to arrive on the 23rd?”

“Yes.”

“That evening is the Spurgeon Christmas party, though I’m not sure I’ll go, and if I do, I’ll leave as soon as the meal is over and bonus checks are distributed. You’re welcome at the house anytime on the 24th, and we’ll start Christmas morning with breakfast at 8:00am. Are you going to call Violet?”

“Yes, as soon as we hang up. I’ll see you on Saturday.”

We said ‘goodbye’, I hung up, then went back to the great room.

“My mom is bringing her boyfriend,” I said.

“Is that a good thing or a bad thing?” Jack asked with a grin.

“He’s a judge, so you tell me!” I replied.

“How did she meet him?”

I shrugged, “However people meet people. Maybe he has a kid in High School and she met him there. I know she wasn’t in court for any reason. I’m actually happy for her.”

“Back to our discussion about starting your own firm — what options do you have for raising capital?”

“Right now, it’s cold calls or letters, plus word of mouth.”

“Only Chicago?”

“And Wisconsin.”

“Perhaps there’s too much competition in Chicagoland. I can’t imagine there are firms like Spurgeon in places like where you’re from.”

I laughed, “And no money, either! Well, OK, Indian Hill and a few other places around Cincinnati, sure, but not Goshen. I’ll do something in January; I’m just not sure what.”

“What about talking to athletes? There are plenty of guys on the Bears, Bulls, Hawks, Cubs, and Sox. I think the key is not contacting them directly.”

“You’ve lost me,” I said.

“You want to find their agents and attorneys. That’s who’ll be managing their money. I bet your lawyer friends might know, too.”

“That’s a very interesting idea,” I replied. “Thanks. If you have other ideas, I want to hear them, please. If you do get the runner’s position, are you going to move out?”

“Please don’t take this personally, but a baby is really going to change things here.”

“True. And you and Kristy are at least five years from that, given she’s always said she intends to finish law school before she has kids. Bianca is due in April, so you have time to find a place.”

“All four of your apartments are rented, right?”

“Yes, though obviously anyone could give notice at any time. You should speak with Kasia Pucinski. She manages several dozen properties, including mine.”

“I’ll do that after the holidays,” Jack said.

“Cool. I think I’m going to turn in.”

I said ‘goodnight’ and headed up to my room, got ready for bed. I read Crain’s and The Economist for about an hour, then turned off the lights and fell asleep.

December 20, 1983, Chicago, Illinois

“Research; Kane,” I said when I answered my phone early on Tuesday afternoon.

“Mr. Kane, my name is Brandon Littleton. I was referred to you by Thomas Hart of Hart-Lincoln. I’m an attorney, and I represent a group of investors who have, collectively, $9 million to invest. Would you have some time to talk?”

“Absolutely. Would this be as individuals?”

“No. The funds are held in a trust, and I am the trustee.”

“What financial products are owned by the trust?”

“All of the assets are in an S&P Index fund at T. Rowe Price. I understand you effectively doubled the S&P gains this year.”

“Very close,” I replied. “You do understand that past performance is no guarantee of future gains.”

“Yes, of course,” Mr. Littleton agreed. “What is your fee structure?”

“Standard ‘two and twenty’ with an 8% hurdle.”

“What’s the process?”

“I’ll send you a prospectus, along with the application forms and the forms to transfer assets. Review the materials, and if you’re happy, fill out the forms and return them, and we’ll get started.”

“I’ve read the prospectus — Hart-Lincoln provided me with a copy. I’d like to get this done quickly. Would you have time to meet later this afternoon?”

“What time did you have in mind?”

“I could be there at 3:30pm.”

I hated the idea of staying late because of Keiko, but I didn’t want to take any risks with the chance at another $9 million in capital to invest. That was especially true as it would come in as pure cash when the shares in the mutual fund were redeemed.

“I’ll fax over the paperwork, and you can fill it out in advance.”

“How long does the transfer take?”

“Approximately ten business days from initiation to completion. Our Legal and Compliance teams need to perform their due diligence. You can save them time if you bring copies of the trust documents with you.”

“I’ll do that. My fax number is 312–555–7744. See you at 3:30pm.”

He hung up without saying ‘goodbye’, something which was common amongst the licensed professionals at Spurgeon but which I felt was rude. I left the Research Department, went to the FX Desk office, got the forms from the shelf, then returned to Research. I faxed the documents, then called Kendall Roy in Compliance.

“I’m not sure it’ll be possible to get this done before January,” he said once I explained what I needed. “Everyone but Clark in Compliance is out next week, and the entire legal team is out. I’m fairly certain most of the onboarding team is taking time off as well.”

“I’ll let Mr. Littleton know. If there is any way to expedite it, I’d appreciate it and consider it a personal favor.”

That was internal code for being willing to compensate anyone who assisted with my request. It couldn’t be cash, but I could certainly provide gift certificates, bottles of wine or liquor, or other gifts.

“Got something hot?” Mr. Roy asked.

“The Nikkei 225,” I replied. “You should have my revised asset allocation guidelines in your inbox.”

“I do. I haven’t looked at it yet. What’s the skinny?”

“Increasing the percentage of assets I can invest in Japanese securities, either individually or in a Nikkei Index Fund, either long or with futures options.”

“I don’t see any problems with that. I’ll read it over, sign off, and you’ll have it by Friday.”

“Thanks. I’ll bring the application, transfer authorization, and trust documents to you before I leave today.”

“Sounds good.”

We said ‘goodbye’, and I hung up, then called home to let Deanna know I’d be late. I asked about Keiko, and Deanna said there hadn’t been any change and that Ellie and some of the girls had visited. She said Keiko had fallen asleep right after they had left. When I finished the call, I spent about ninety minutes on research before my meeting with Brandon Littleton.

When he arrived, I was called up to Reception. He was my height, had sandy blonde hair, and was wearing a tailored suit that I was positive had come from Beth’s grandfather’s tailor shop.

“Jonathan Kane,” I said, extending my hand.

“Brandon Littleton,” he answered, shaking my hand firmly.

“I remember reading your name in relation to a wrongfully accused suspect in February of last year.”

“You have an amazing memory,” he observed.

“Normally, I wouldn’t remember, but the young woman who was raped and murdered was a friend of mine. I’m glad they eventually got the right guy.”

“As am I. I believe all the paperwork is in order.”

He handed it to me, I scanned it, saw that it had been properly filled out, and both documents had been notarized.

“I’ll take these to Compliance right now,” I said. “They’ll get started, but I’d expect the funds transfer to occur during the first week in January.”

“Please do anything you can to expedite it.”

“I’ve already asked them.”

We shook hands again, and once he was in the elevator, I went to Compliance and handed the forms and trust documents directly to Kendall Roy.

“$9.37 mil?”

“Yes. Anything you can do to expedite it would be greatly appreciated. If you can find a way to get it done by December 30th, there’s a dinner for two at any restaurant you can name with any bottle of wine you want to drink.”

He laughed, “You’re learning the game. Let me work.”

“Thanks.”

I left and returned to 29, stopping in to see Mr. Matheson before I left.

“I just signed close to $10 million,” I said.

“Union?”

“No. An investment trust. Compliance has all the paperwork.”

“You’re at about $110,000,000 AUM, right?”

“Yes.”

“Once you go over $100 mil, it changes your compensation and bonus structure. Did Noel talk to you about that?”

“No.”

“The short version is your salary is offset against your management fees, and your monthly draw is half a percent of your fund’s annual management fee minus the capital contribution. Expenses are charged pro rata, so even though it’s just you, you’ll cover a share consistent with your AUM. Any excess above your draw is paid quarterly, and any overdraft has to be repaid by January 15th of the following year. Your bonus is purely discretionary, and will reflect your fund’s performance.”

The ‘capital contribution’ was the portion of the management fee that was transferred to the Spurgeon Select Fund in Mr. Spurgeon’s name. That would be a straight 25% of the collected fees. Knowing the expense ratios from the monthly reports, and doing a rough calculation indicated I would net somewhere around $220,000 in direct compensation in 1984, not counting any bonuses. If I made no gains or even lost money, I’d still have income ten times the average worker. Of course, if that happened, I wouldn’t have a job!

My ‘draw’ was the portion of the management fee that would be automatically paid each month, charged against the fees collected on the first business day of January. I could take out more, if I wanted, or simply wait for the quarterly payment. To me, waiting made perfect sense, as I’d draw about $10,000 per month.

The reason I wasn’t paid the full amount was that expenses fluctuated month-to-month, and were heavily dependent on the types of trades executed by the firm, estimated quarterly tax payments, staffing changes, and every other bit of ‘overhead’ or ‘expense’, which had to be accounted for and drawn from the management fees.

“How does carried interest work in that case?” I asked.

“You retain twelve points of the ‘twenty’ in your name, with the remainder assigned to Noel Spurgeon, but left in your fund. I suspect Noel will speak to you after the 1st.”

If my returns were anything like the previous year, that would mean I’d have carried interest of around $800,000 just for 1984. The numbers were mind-boggling. Barring some kind of major setback, I was well on my way to making tens of millions of dollars.