Jane Fraser is on a mission to bring Citigroup back to its former glory.
Her strategy spans layoffs, hiring new leaders, and a multibillion-dollar firmwide initiative.
Fraser still has a long way to go on several fronts.
When Jane Fraser took over Citi in March 2021, she inherited a bank saddled with regulatory problems and outdated technology that lagged behind its other household-name peers.
This year's market headwinds have been kind to Citi's stock price, which is up 33% year to date, but Fraser's overhaul has a long way to go. Banker R. Christopher Whalen wrote this week of the numerous drags on Citi's performance, including high-interest expenses, large funding costs, and undersized non-interest income.
"It is a big positive that the market following for Citi has improved, yet the financial performance remains a struggle," wrote Whalen. "Citi management clearly want to grow into new areas, but our basic question is where can Fraser realistically take the bank?"
It's not for lack of trying. Fraser has brought in several new executives to right the ship, including JPMorgan's Vis Raghavan, PwC's Tim Ryan, and Merrill Wealth Management's Andy Sieg. In September 2023, Sieg joined Citi to fix its ailing wealth business. Should he succeed – and should Fraser falter – he has a chance of becoming Citi's next CEO. Sieg has made many changes to the leadership ranks with four of his original 14 direct reports departing and a total of at least 33 senior executives leaving within his first year.
Citi has added to its leadership ranks, promoting 344 managing directors in early December, its largest class under Fraser. However, these promotions come at a tense time for employees. The bank has kicked off its grueling annual review process that rates employees from best to worst. These rankings influence who gets promoted and who loses their bonus— or worse. There is greater stress over the process than usual as the bank has laid off 7,000 employees this year and plans to cut 20,000 jobs by 2026.
Perhaps Fraser's biggest challenge is satisfying regulators who have rebuked the bank. In July, two regulators fined Citi $135.6 million for failing to make enough progress in fixing its data-management issues. The bank had agreed in 2020 to work on this problem and others, including poor risk controls, after paying $400 million in fines to the Federal Reserve and the Office of the Comptroller of the Currency. The OCC said in July that the bank had made "meaningful progress overall" but that the agency wanted to ensure Citi allocated enough resources to address the "persistent weaknesses" regarding data.
These new fines are despite Citi dedicating billions of dollars to a firmwide initiative to overhaul the bank's technology. To run this "Transformation" project, Fraser picked Citi consumer-bank veteran Anand Selva, naming him as COO in March 2023. Eight current and former employees told Business Insider that they were surprised by his appointment given that he had never held a leadership role in technology or compliance.
Since the July fines, Fraser has tapped Ryan, the bank's new tech head, to lead the data effort alongside Selva. Still, she has been dogged by questions regarding the Transformation's progress or lack thereof.
That said, Citi might get some breathing room under Donald Trump's second presidential term. Trump has signaled he would cut down on oversight. In a speech at the Economic Club of New York in September, he pledged that if reelected, he would eliminate 10 rules for each new rule.
In a research note, Mike Mayo, a Wells Fargo analyst, called Trump's win a "regulatory game changer." He told BI that Citi was still in "regulatory purgatory" but that the bank would likely face less scrutiny for its data-quality issues.
If so, it would go a long way toward Fraser's legacy.
The rich can use private-placement life insurance to save tens of millions of dollars.
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The richest of the rich can use life insurance to avoid estate and income taxes.
Private-placement life insurance is perfectly legal — unless a new bill passes.
A financial advisor tells Insider how the insurance saves the wealthy tens of millions of dollars.
Life insurance is probably the least sexy area of financial planning. But for the richest of the rich, policies can slash tens of millions of dollars off their tax bills.
Private-placement life insurance is a little-known tax-avoidance tactic. When structured correctly, PPLI policies can be used to pass on assets from stocks to yachts to heirs without incurring an estate tax.
"In the US, people sell life insurance as a middle-class way of structuring assets," Michael Malloy, a wealth advisor who has specialized in PPLI for 20 years, told Business Insider in 2022. "But PPLI is a completely different animal."
The PPLI industry enables a few thousand ultra-rich American taxpayers to shelter at least $40 billion, according to an investigation by the Senate Finance Committee. The report estimated that the average PPLI policyholder is worth well over $100 million.
PPLI is legal—for now. On December 16, Oregon Sen. Ron Wyden released a draft bill to close the loophole. Under the Protecting Proper Life Insurance from Abuse Act, PPLI policies would be treated as investment funds, not life insurance or annuity policies, which would eliminate the tax benefits.
"Life insurance is an essential source of financial security for tens of millions of middle-class families in America, so we cannot have a bunch of ultra-rich tax dodgers abusing its special tax treatment to set up tax-free hedge funds and shelter oodles of cash," Wyden said in a written statement.
While tax savings are the primary draw of PPLI for US clients, those in the Middle East or Latin America are often looking to use trusts to conceal information about specific assets from corrupt governments, Malloy said.
"Clients don't want an organized crime ring bribing an underpaid tax official to get information on their family," he said.
US taxpayers are required to report to the IRS only the cash value of a foreign life-insurance policy, not the assets within the trust.
These offshore life insurers in jurisdictions such as the Cayman Islands and Bermuda typically require at least $5 million as the upfront premium. Malloy advises that clients have at least $10 million in assets to make PPLI worthwhile. His clients usually hold at least $50 million in assets.
Here is how PPLI works
In short, an attorney sets up a trust for a wealthy client. The trust owns the life-insurance policy that's created offshore.
The PPLI policy premiums are funded with assets. The assets must be diversified — typically with at least five different asset classes — and can include stocks and business interests, as well as tangible assets like yachts and real estate.
Depending on the client's age, nationality, and other factors, the death benefit can, in theory, max out at $100 million, Malloy said.
If structured correctly, the benefit and the assets in the policy are passed to the children without incurring an estate tax. A 40% federal estate tax applies to estate values topping $13.61 million for individuals and $27.22 million for married couples.
Unlike with policies from US insurers, clients can cancel their policies without paying a massive surrender fee. The assets also grow within the trust tax-free. The cash value of the PPLI policy assets is held in a separate account, and this cash can be disbursed to the policy holder or invested. Investing in hedge funds is a popular use of PPLI assets.
But there's a catch. Policyholders have limited control over investment decisions. They cannot give directives to the asset manager to buy a certain number of shares in Apple, for instance.
It also requires a small army of professionals, including trust and estate attorneys, asset managers, custodians, and tax advisors. Since PPLI is relevant only to the ultrawealthy, few in wealth management or law are familiar with it.
"There's no questions on the CPA exam or the bar exam about PPLI, and asset managers are kind of skeptical," he said. "They think you're going to take assets away. Actually, the assets become stickier and get more alpha because the client pays less tax."
How the proposed bill would endanger PPLI
Under Wyden's proposed legislation, most PPLI policies would be classified as "private placement contracts" (PPCs) rather than life insurance policies. As such, any accumulated earnings and death benefits would be taxed.
The bill would apply to future and existing PPLI policies, giving policyholders 180 days to liquify the assets or transfer them. Insurers who dare to issue or reinsure the policies will no longer have the benefit of secrecy. To better enable the IRS to enforce the bill, insurers will have to report all PPCs or face a $1 million fine for each 30-day period that they fail to do so.
The bill faces steep odds of passing with Donald Trump's reelection and a Republican House and Senate. The insurance industry is counting on it.
"This legislation is an attack on all forms of permanent life insurance and, by extension, an attack on holistic financial planning," said Marc Cadin, CEO of trade group Finseca, in a statement. "We look forward to working with the new Congress and the Trump administration to advance policies to move our country forward rather than raising taxes on life insurance."
Citi rates its 200,000 employees on a forced curve that assesses peers from best to worst.
These rankings influence who gets promoted and who loses their bonus — or worse.
Managing directors told BI how the process works and why it can pit employees against each other.
Citigroup welcomed 344 new managing directors earlier this month, marking its biggest class in years. Behind the scenes, the promotion process can be political and fraught, pitting employees against each other, four current and former managing directors told Business Insider.
Citi evaluates employees on a forced curve, requiring managers to rank them from best to worst using a four-level scale with a certain percentage in each bucket. This system means there's a finite number of top ratings, so employees could exceed all the requirements of their role and still receive a middling grade, said the employees, who spoke on the condition of anonymity.
"We are a company filled with hardworking, achievement-oriented colleagues and we embrace meritocracy," a Citi spokesperson told BI in a written statement. "Our process aims to ensure that colleagues across Citi are held to consistent standards and are assessed by those who have the most direct knowledge of their contributions."
Over the years, the percentage ranges for each bracket have shifted slightly. A managing director said this year each business line could assign top ratings of 1 ("exemplary") and 2 ("exceeds expectations") to 5% to 10% and 15% to 30% of staff, respectively. The lion's share of employees — 50% to 65% — are labeled as "valued contributors." The remaining 3% to 7% who receive a 4 rating ("needs improvement") may face consequences such as being put on a performance improvement plan or losing bonus eligibility.
"It creates an air of distrust inside of cultures and a lot of anxiety for employees that are high performers but may not be recognized for the work they do," John Frehse, a senior managing director at the management consultancy Ankura, said about the ranking practice.
Citi CEO Jane Fraser.
Patrick T. Fallon/Getty Images
The same morning the new class of managing directors was announced, Citi held a virtual town hall for employees. During the Q&A session, human resources addressed an employee's written question that noted the forced distribution system could be unfair to small, high-performing teams. Sara Wechter, Citi's head of human resources, replied that there was no forced bell curve.
A senior Citi executive familiar with the process told BI that Citi's curve is not forced as it uses brackets rather than fixed percentages.
"We have guidelines associated with ratings, which is different from a forced curve," he said.
That reasoning is of little comfort to employees BI spoke to who assign those ratings.
"They are playing with words," said a managing director in the wealth division. "We were mandated to strictly follow the prescribed curve."
This season's annual reviews, which began last week, play a key role in bonus allocations and promotions, including to managing director.
They come at a tense time for Citi's workforce. As part of CEO Jane Fraser's mission to turn around the bank, Citi has laid off 7,000 employees and divested from several businesses. The overhaul isn't over, with the bank planning to cut 20,000 jobs from its workforce of more than 200,000 employees by 2026. Amid these changes, the managing director said there's more anxiety about the review process and uncertainty about bonuses.
Here's how Citi's forced curve works
Grading on a forced curve is not unique to Citi. The practice, otherwise known as stack ranking, was popularized in the 1980s when General Electric's former CEO Jack Welch used it to cut bottom performers. However, this "rank and yank" tactic has fallen out of fashion with many major companies such as Microsoft and Amazon. Most banks engage in some form of stack ranking but the details differ, such as how strictly they adhere to a curve or the grading criteria they use.Morgan Stanley uses a five-point scale. Goldman Sachs has changed its system several times and, beginning in 2020, it's used a three-level system.
"Good companies try to distinguish between the higher and lower performers and do that in terms of how people get raises, what their total compensation would be," said Anthony Nyberg, a professor of management at the Darla Moore School of Business at the University of South Carolina.
Citi employees receive two main ratings with each one graded on a curve, two ex-managing directors said. The two criteria are the "what," which measures an employee's results, such as revenue metrics, and the "how," which evaluates their approach and leadership abilities. This means employees get a combination score such as 1-2.
While it is not a hard and fast rule, Citi employees are usually expected to earn top ratings for two to three consecutive years to receive a promotion, so the review process puts aspiring directors and managing directors under enormous pressure, three of the managing directors told BI.
Direct managers submit their ratings for review before having a so-called "calibration" meeting with their fellow managers, the top manager of their business unit, and an HR representative, the two former executives said. At these meetings, direct managers review an employee's scores and make a case for why the employee deserves a coveted 1 or 2.
After these calibration meetings, the top manager makes the final call on rankings. The outcome often disappoints managers and their reports, who may have never worked directly with the decision-maker, the managing directors said.
The senior executive said that small teams of three or four employees can secure exemptions to the curve. As for large teams with high performers, he said there might be exceptions on a year-to-year basis but he wasn't aware of any ever happening.
MDs said the process pits employees against each other
The evaluation process was described as contentious and stressful by the current and former managing directors, all of whom were responsible for rating employees. The calibration meetings were especially heated, with managers butting heads over which employees received the limited high ratings.
Given the number of top rankings is fixed, managers were typically unwilling to budge on the 1s and 2s they were allotted, even if another manager argued they had more high performers. "No one was like, 'You can take mine,'" said one of the ex-managing directors, who left Citi this year. "We fought."
The managers took issue with other aspects of the grading process. By implementing a curve on the team level, employees were sometimes compared to others with vastly disparate roles or responsibilities. Two of the ex-managing directors described some of the grading criteria as nebulous. For instance, they said, for employees with non-revenue-generating roles, the "what" score is effectively up to the manager's discretion.
Frehse told BI that the biggest flaw with stacked ranking is that performance reviews are inherently subjective.
"Stack ranking is inaccurate from the start," he said. "You're either only looking at the quantitative side, forgetting about the other side, or you're looking at both. And we know that the qualitative side is flawed and subjective."
Frehse said that leaves room for employees to believe favoritism is at work. Three of the managing directors told BI that they believed internal politics played a role in how employees were ranked and which managers received top ratings for their direct reports.
"When you use such a system, it tells you you can't trust different managers to be good managers," said one of the former managing directors.
The senior executive said that the many calibration meetings he attended were productive.
"It's just a way to get together, get out of the silos, and make sure that there's fairness and perspective that goes beyond your own team," he said.
While he maintained that he had not seen hostile calibration meetings, he said that some conversations could get heated.
"This is a very human thing when you have finite anything, and obviously we have finite compensation," he said. "Of course, people are aware of that, but I don't think it's a flaw in the design. I think that's just part of being human."
At its best, stacked ranking should reduce anxiety among employees, Nyberg said.
"People get very upset when things appear to be arbitrary, and the ranking system should actually reduce some of that as long as people can believe that you're doing those rankings in some sort of objective way," he said.
However, it's hard for employees to trust the system if they lose trust in their employers, which often happens after layoffs, Nyberg said.
"It's that contract between the organization and the employees starts to feel really violated that way, and then that permeates everything about it," he said, "then you wouldn't believe anything they say."
Investment tactics often require big buy-ins and high fees.
New tech is lowering the price of entry in fields like direct indexing and private markets.
This article is part of "Transforming Business," a series on the must-know leaders and trends impacting industries.
Investing like a billionaire comes with a high price tag. But thanks to technology, the barriers to these elite opportunities are starting to crumble.
Consider direct indexing, a strategy favored by the rich to lower taxes by selling underperforming stocks and using the losses to offset other gains. These personalized portfolios used to be out of reach of the merely affluent, requiring steep account minimums. Over the past five years, direct indexing has exploded as technological advancements have made it worthwhile for wealth managers to offer the services to Main Street customers. The account minimum for Fidelity's FidFolios, for example, is only $5,000.
"Direct indexing has become accessible at a different level of wealth than it has been in the past," said Ranjit Kapila, the copresident and chief operating officer of Parametric. "That wouldn't have been available or possible without the technology trends we've had to be able to do this level of computation at scale in a cost-efficient manner."
Parametric, the pioneer of direct indexing, is also moving downstream. By adopting fractional-share investing, Parametric lowered the minimum for its core product to $100,000 from $250,000. The firm plans to offer a direct-indexing product with fewer customization features for $25,000 in 2025.
Private markets face steeper hurdles. This opaque field was traditionally reserved for deep-pocketed investors like pension funds and ultrarich individuals. But now investors have more access to financial results for funds and privately held companies as data providers race to meet their needs. Machine learning and AI have made it easier for these firms to extract and analyze data.
BlackRock views this data as the great equalizer and has grand ambitions of indexing these opaque private markets. The asset-management giant agreed this summer to acquire the data powerhouse Preqin for $3.2 billion.
"We anticipate indexes and data will be important to future drivers of the democratization of all alternatives," BlackRock CEO Larry Fink said on a conference call. "And this acquisition is the unlock."
Leon Sinclair, Preqin's executive vice president, argued that with the number of public companies dwindling, it's imperative for mass-affluent investors to get better access to private markets.
"Clearly there's more, deeper, better sources of funding for private companies that could stay private for longer," Sinclair said. "I think it's fair that the mass affluent can — in the right way — be brought along on that journey to get exposure to that part of the mosaic earlier."
Investing in automation for a competitive edge
Kapila described these technological developments as part of a trend in wealth management to capture customers before they make it big.
"There's a desire by financial advisors to try and engage investors earlier in their wealth-accumulation cycle," Kapila said.
Parametric, acquired by Morgan Stanley in 2021, operates in a competitive arena. Thanks to a wave of similar acquisitions, Parametric faces well-capitalized rivals such as BlackRock's Aperio and Franklin Templeton's Canvas. Industry stalwarts like Fidelity and upstarts like Envestnet also want a piece of the action.
Kapila said the need to compete on scale and fees required Parametric's technology to be as efficient as possible.
"It'll be harder," he said. "We have to do many, many more accounts to really drive growth in assets, etc. But those challenges are exciting to me as a technologist."
To meet that need, Kapila is pushing Parametric to develop more automated products, such as Radius, which launched this year. Radius constructs equity and fixed-income portfolios and runs simulations to identify the best selections for portfolio managers. He plans to launch more cloud-native tools, which are easier to scale and manage, for other asset classes in 2025 and 2026. Parametric is also piloting generative-AI tools to onboard accounts more efficiently.
Clients' expectations are also rising. There's demand for Parametric's tax benefits but with actively managed strategies rather than indexes, he said, spurring partnerships with asset managers.
Parametric recently launched an offering that allows customers to pick equities off strategies from the financial-advisory and asset-management firm Lazard.
To stay ahead of the curve, Preqin is developing more sophisticated products. Last year, the UK firm launched an Actionability Signal that uses machine learning to identify private companies likely to be open for investment.
"The sole focus on public information for certain tasks around valuation and risk management are not really going to be the way that people do this," Sinclair said. "We're moving much more to a world where real proprietary private information at the asset level, which is transactionally oriented, is available to people."
In June, his division launched a data tool that analyzes $4.8 trillion worth of deals across 6,500 funds. This database can be used in a slew of ways, from backing up valuations in negotiations to identifying which financial factors, such as revenue growth or debt paydown, contributed the most value to a successful deal.
With the rise of generative AI, Sinclair expects that users will be able to interpret data with more ease using natural language commands.
"I think you'll see that be more prominent across the industry where people expect to interact with large data sets in really natural common ways," he said. "We think all that will probably start to be visible over the coming years."
Tech is the first step to narrowing education gaps
On average, retail investors allocate just 5% of their portfolios to alternative investments. If BlackRock successfully indexes private markets, it could go a long way toward boosting that percentage.
However, Sinclair said more work is required to help mass affluent investors feel comfortable investing in private markets. As someone who grew up working class and was only introduced to finance in college, he knows there is an education gap to overcome.
"To get Joe Bloggs very excited and comfortable with committing capital, they need to be able to understand what the different basis of those returns are," Sinclair said.
He added: "I think it's in the industry's interest to enable those new sources of capital, to bridge the gap in understanding, to bridge the gap in analytics, to bridge the gap in frequency of reporting, to make that an easier journey for people to go on."
Firms want more private market products to offer clients and are willing to buy instead of build.
Private credit firms with $30 billion to $70 billion in assets will be the firms to watch.
While deals make sense on paper, firms might have to deal with potential culture clashes.
The trend in asset management is pretty clear — private markets are the new black.
"If you're not in private markets or private credit, you'll need to move in that direction, or you'll get left behind," PwC financial services deal leader Greg McGahan told Business Insider.
Asset managers who have traditionally relied on ETFs and mutual funds to make money are itching to expand into alternative assets to diversify their offerings and boost fee revenue, a new PwC report said. That demand and expectations that interest rates will continue to drop and incoming light-touch regulators mean asset managers are ready to dust off their dealmaking playbooks.
Private credit firms specifically are in demand, as shown by the blockbuster BlackRock deal announced last week. The asset management giant agreed to buy the private credit firm HPS Investment Partners for $12 billion.
And it's not just the traditional money managers. Private equity firms are also using acquisitions to strengthen their private credit capabilities and market presence. PwC sees increasing competition in private credit contributing to the consolidation of alternative asset managers.
McGahan said private credit firms with between $30 billion and $70 billion in assets under management will be the ones to watch. They will either need to make a deal to grow bigger or be snapped up themselves.
"Those types of shops potentially could be absorbed into other shops that are looking to grow their portfolios," he said. "It's either acquire or be acquired."
Deals in alternatives will also be driven by aging founders in the private markets space who are trying to figure out succession planning and capitalizing on the ability to monetize their investments.
For his part, McGahan is seeing his deals practice's work ticking up and "getting up to full capacity. We'll be at supersaturation levels pretty shortly. So, I think you're seeing that pent-up demand now manifest itself."
Questions of culture
While the marriage of firms operating in one investing discipline with another makes sense for diversification reasons, the actual integration of the two could be trickier.
Culture and compensation are very different between traditional firms and alternatives. A portfolio manager at a publicly traded mutual fund might receive cash compensation and equity stakes. If you're a private equity manager, you're paid with carried interest, or a percentage of profits generated from the firm's investments.
"Could you have within a large traditional manager basically an alternative platform where the PMs are earning multiples of the existing PMs on the traditional side? That's going to be a cultural challenge,' McGahan said. He added there are also operational differences and gave the example of a private credit firm using treasury functions daily versus a private equity firm that uses a couple times a month.
The question of cultural fit is top of mind at BlackRock when the asset manager makes acquisitions, according to the firm's CFO Martin Small. BlackRock has made several high-profile acquisitions this year, snapping up Global Infrastructure Partners in January in addition to HPS.
Small, who was part of many meetings with HPS's executive team to test the waters, said the cofounders shared important values with BlackRock CEO Larry Fink and firm president Rob Kapito.
"We all speak the same language," Small said at the Goldman Sachs Financial Conference in New York. "They're founders. Larry Fink and Rob Kapito are founders. We're client-centered firms. We believe in scale, we believe in global."
Integrating two firms successfully requires lots of important — if technical— work behind the scenes, Small added.
"People, platform, process — think about all the pedestrian things of the employee experience. You've got to be on the same email system, you've got to make sure people's laptops work, you've got to make their key cards work at the door, " he said. "All of that's done so we can just get to business on realizing the synergies and delivering for clients.
Former President Donald Trump was attacked by a gunman identified by authorities as Thomas Crooks, whom BlackRock said also featured in an ad about a teacher at Bethel Park High School.
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BlackRock is on a string of multibillion-dollar acquisitions to bolster its private-markets prowess.
In late November, the asset management titan bought private-credit firm HPS for $12 billion.
CFO Martin Small explained how the acquisition fits the firm's three requirements.
BlackRock is spending top dollar in its quest to dominate private-markets investing, recently agreeing to buy private-credit firm HPS Investment Partners for $12 billion. It's been a busy year with the asset management giant also buying data powerhouse Preqin and private-equity firm Global Infrastructure Partners (GIP) for $3.2 billion and $12.5 billion, respectively, earlier this year.
"Inorganic has always been a fundamental part of the BlackRock strategy," said Martin Small, the firm's chief financial officer, in an interview at the Goldman Sachs Financial Services Conference on Tuesday.
BlackRock isn't afraid to take big swings.
"We've never shied away from taking big bets," CEO Larry Fink said in an analyst call about the GIP acquisition last week.
BlackRock, which oversees $11.5 trillion, is not new to transforming itself through deals. In 2009, it pushed into passive investing when it bought Barclays' asset-management business. The acquistion gave it iShares and helped it become the public markets juggernaut it is today.
The firm has important criteria for its major acquisitions. At the New York City event, Small laid out the top three factors and how HPS met them.
Cultural fit
Small, an 18-year BlackRock veteran who is also the global head of corporate strategy, named cultural fit as his top priority.
"We have to acquire the kind of people that are aligned to a 'One BlackRock' culture and mission," he said, referring to the firm's ethos of working collaboratively.
Small was part of many meetings with HPS's executive team to test the waters. He said the cofounders shared important values with Fink and BlackRock President Rob Kapito.
"We all speak the same language," he said. "They're founders. Larry Fink and Rob Kapito are founders. We're client-centered firms. We believe in scale, we believe in global."
The three cofounders of HPS — Scott Kanick, Mike Patterson, and Scot French — will lead a new private financing solutions unit at BlackRock and join the firm's global executive committee.
Enrich and extend BlackRock's platform
BlackRock only makes acquisitions that are additive in more ways than one.
"We've been in all the businesses that we've acquired, whether it's private credit or infrastructure or SMA or options or whatever. We've done technology and data in the last year," Small said. "It's not just about new capabilities. It's about new capabilities that make the ones you have better."
Combining BlackRock's existing private credit business with that of HPS will produce a diversified business with a broader reach.
"HPS has been very active in kind of the upper-middle market in terms of direct lending, but also the junior capital solutions," Small said. "Our team has historically been active more in the middle market, kind of $75 million EBITDA borrower base. So there's an enrichment."
"I also think that'll strengthen origination, our ability to do more transactions, meet borrowers where they are," he added.
Topline results
"You've got to be a credible operator on a consolidated basis of these businesses," Small said of acquisition targets.
Given BlackRock's prowess, it takes a sizable acquisition to move the needle. HPS's $148 billion in client assets fits the bill.
"We'll now have a $220 billion preform a private credit business at BlackRock so we'll be very scaled in that regard," he said.
Rich Americans want their homes to stay in the family without causing sibling squabbles.
SolStock/Getty Images
Rich Americans want their mansions to stay in the family without causing sibling strife.
They can use trusts to dictate how their heirs can use the family home and who pays for what.
These wealthy homeowners can save on estate taxes at the same time.
In a survey conducted by Ameriprise in 2022, nearly seven out of 10 respondents said they planned to leave real estate to their heirs, but more than half of them said they hadn't told their heirs about it.
Even among rich heirs, passing on real estate without proper planning can lead to sibling strife. Who gets the Hamptons house for July 4? What if one sibling wants to renovate the Aspen chalet and the others don't want to split the cost?
"You have to start by recognizing that the family home or the vacation home is more than a financial asset. It is deeply personal," Adam Ludman, the head of tax advisory at JPMorgan Private Bank, told Business Insider.
Instead of leaving thorny questions up to the kids, parents can control how the property will be managed after they die. They can gift the home using a trust that includes enough cash to maintain it. (If done before death, this can save on taxes, too, Ludman said.) Their chosen trustee looks after the property's finances and, if the parents wish, has the power to sell or transfer the home under certain conditions.
Parents can also use operating agreements to allocate holidays to each sibling and control whether the home can be used for family weddings. They can even stipulate which types of property damage the trust will pay to fix if a family member is responsible. Operating agreements can go into exacting detail, but Ludman said it's important to leave some control up to the heirs.
"They can be granular, but they also need enough flexibility so the operation of the home is not overly restricted," he said. "Families obviously evolve and expand, and circumstances can change."
When equal isn't equitable
Parents often assume their adult children will share the property equally after they pass, Ludman said. But they should talk to their children — and possibly their partners — to assess their preferences.
"Does each of them have the same attachment to the home?" he said. "Will they continue to use it with the same regularity? Will they be able to share equally in the expenses of the home?"
He added that one of the most common dilemmas is having children with different incomes. Perhaps two of three adult heirs are wealthier than the third, who doesn't want to share the burden of property tax and other costs. The parents can account for this by putting funds in the trusts to cover their costs. Alternatively, they can put a buyout provision in the operating agreement that dictates how the two siblings can acquire the third's stake.
While Ludman encourages allowing the heirs some control, it's important to have a decision-maker in case the siblings reach a stalemate. The trustee can make the final call on issues like repairs, renovations, or even whether to sell the property.
Some parents prefer to give their children more power. Rather than using operating agreements, they can write a "letter of wishes," Ludman said. This document is not legally binding but indicates how the parents would like the property to be used.
He described this as an important time for transferring homes and other assets. Married couples can give away $27.22 million in assets without incurring the 40% federal estate tax. That exemption is due to expire at the end of 2025, but it looks likely that it will be extended given the Republican Party's control of Washington.
Two of those are fictional movie characters, and one was based on a real person, but they've all shaped the public's perception of what working on Wall Street could be like.
If you ask successful people at some of the biggest banks, asset managers, trading firms, or hedge funds whether they see their reality accurately perceived on the screen or in books, they'll tell you that working on Wall Street is a little less colorful than it's often painted to be.
"I don't know that there's a great movie or book depicting life on Wall Street," Mark Zhu, 34, a managing director at Blackstone, told Business Insider. "The day-to-day is a lot more boring than you think. It's a lot of calls and a lot of emails. There's not as much flamboyance or out-there behavior. It's almost not movie-worthy. Why would you pay money to watch somebody just sit in front of a computer doing Zooms?"
So maybe they think all that partying on HBO's show about twentysomething investment bankers, "Industry," is a little overdone, but there are still some elements the entertainment industry gets right occasionally.
We asked up-and-comers on Wall Street about the shows, movies, or books that best represent their daily lives. While no one representation was perfect, the young professionals talked about some of the parallels they saw. Some even shared some nonfinancial references that give a window into their world.
Here are the shows, movies, or books that give a flavor of what it's like to work on Wall Street.
Shows: "Industry"
"Industry" follows junior bankers at a fictional elite institution in London.
Amanda Searle/HBO
The hit TV show "Industry" — full of sex, drugs, and spreadsheets — just wrapped up its third season.
"My friends in the last few years have nonstop bothered me about 'Industry,'" Justin Elliott, 29, a vice president of institutional rate sales at Bank of America, said.
"They see a crazy show about the industry and say, 'My God, I can't believe that happens in your world every day.' From what I've seen, there's definitely some thrills from getting a trade done that might mirror the show a bit, but it's a very exaggerated depiction of life on Wall Street."
"I don't know that any of them do a great job, but I am quite a fan of 'Industry,'" Erica Wilson, a vice president at the private credit firm Blue Owl, said. "I am still behind on the third season, but I think that show is fun."
"Succession"
"Succession" siblings fight it out over four seasons for the future of their father's media conglomerate.
David Russell/HBO
Though the blockbuster show "Succession" isn't specifically about the banking industry, Daniela Cardona, a 29-year-old investment banker at RBC Capital Markets, watched it in its entirety and found some similarities in high-stress moments.
"In the last season, when they're trying to merge the two companies, there's one scene that always makes me giggle. I don't think this is fully accurate, but I do think it's funny — they're in a conference room, and Kendall says, 'Just make it up!' and they're all with their laptops sitting in the middle, and the consultants are looking at him like, what do you mean, make it up?" Cardona said.
"There have been instances where it sometimes feels that way — where you're in a time crunch and it's 3 o'clock in the morning."
"Scrubs"
"Scrubs" follows a group of medical students learning the ropes.
ABC/Photofest
Ben Carper, a 34-year-old managing director at Jefferies, pointed to the medical comedy sitcom "Scrubs" as a better representation than anything that features board rooms and trading floors.
He said the show had a "similar high-pressure environment where there are some opportunities for amusement and humor, but generally a pretty vigorous focus on doing a job well done."
Movies: "Margin Call"
"Margin Call" takes viewers inside a nameless financial institution.
Roadside Attractions
The 2011 drama "Margin Call" follows the 24 hours after an analyst at an investment bank discovers it has taken on more debt than it can handle — illustrating the early stages of the 2008 financial crisis.
"I think it picks up the cadence of working at a big bank the best," said Austin Anton, 32, a principal at Apollo Global Management.
"The Wolf of Wall Street"
Leonardo DiCaprio plays Jordan Belfort in the Martin Scorsese-directed film.
Paramount Pictures
"The Wolf of Wall Street" follows the story of Jordan Belfort, who actually only worked at a Wall Street firm for a few months before the 1987 stock-market crash. He goes on to run his own brokerage, which ultimately scams several people, but the movie highlights the debauchery, opulence, and excess that ensued during his run.
"This almost sounds weird, but I'm going to say 'The Wolf of Wall Street,'" Matt Gilbert, a managing director at Thoma Bravo said. "The absurdity of that movie, to some extent, I do think, kind of incorporates some aspect of our job."
While finance is the backbone of the economy and certainly has global implications, what bankers and investors do on a day-to-day basis isn't saving lives, the 35-year-old added.
"I think the fact that you could have a comedy wrapped around the finance world is important, and it always makes me take a step back and think through, sure, I want to win every deal," he said. "Our fiduciary duty at Thoma Bravo is to produce the best returns for LPs, but this job is supposed to be fun. I'm supposed to work with great people. We're supposed to laugh together. I think if people take this job too seriously, that's when burnout and other things happen."
"The Big Short"
"The Big Short" follows several Wall Street players as they begin to piece together what was happening to the American housing market.
Paramount Pictures
"The Big Short," the movie based on the financial journalist Michael Lewis' book, chronicles how Wall Street helped fuel the US housing crisis in 2008 and the investors who profited from it.
"It's not our day-to-day, but I think it is an OK representation of what happened at the time," said Chi Chen, 34, a portfolio manager at BlackRock. " Maybe it is not all factual, but it is a good one that is representative."
"The Internship"
Starring Owen Wilson and Vince Vaugh, "The Internship" actually shot some scenes at Google's headquarters.
20th Century Fox
Patrick Lenihan, a portfolio manager at JPMorgan Asset Management, said "The Internship," which features two old-school salesmen trying to restart their careers through an internship at Google, reminds him of the importance of having and supporting a diverse team.
"I feel like that team with Owen Wilson, Vince Vaughn, the rest of them, and how they come together at first, you see there's just a variety of different people that you're like, 'Oh, this is going to fail,'" he said. "But I think a large part of my success is going back to that teamwork, getting the right people in, and ensuring that diversity of opinions."
Books: "Market Wizards"
Amazon
BlackRock's Chen, who focuses on fixed income, said that to really gain insight into the investing industry, it's best to read the "Market Wizards" book series, which features interviews with top traders.
"A lot of those investing stories for that book series are more from two, three decades ago, when market volatility was much higher. But we have seen a comeback of market volatility since 2020," she said. "So I have always enjoyed that whole series of books."
"Free Food for Millionaires"
Amazon
Elliott, the Bank of America VP, recommends Min Jin Lee's novel "Free Food for Millionaires."
"It's about a Korean woman navigating life who ends up on Wall Street in an admin capacity. But really, it's a story about belonging and identity — about trying to make it in a world and industry you didn't initially know much about," he said.
"To me, it's a lot more humanistic. It gives me a bit more of a personal perspective when I think about my journey on Wall Street. When I think about the people — and understanding people is so much of this job — I go back to 'Free Food for Millionaires.'"
"The Man Who Solved the Market"
Amazon
There's no fictional piece of media Bridgewater's Blake Cecil has found to reflect life in finance; he said shows and movies "feel quite distant" from his day-to-day.
A biography of the late hedge-fund billionaire Jim Simons, "The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution," reflects how the deputy chief investment officer and his colleagues approached challenges.
"It resonated with my experience of working with people who are using algorithms to solve problems that often hadn't been asked before," Cecil said.
"The Inner Game of Tennis"
Amazon
Harrison DiGia, a vice president at General Atlantic, had another book recommendation: "The Inner Game of Tennis" by W. Timothy Gallwey.
"This book is all about the mental game and trusting your intuition and yourself. You use practice and your preparation before a competition so that when the time is right, or you have a big opportunity, you're ready, and your mental game is as strong as it can be," DiGia, 31, said.
"When I think about investing, a lot of it is setting yourself up to get that big opportunity and making sure you're prepared and can have a clear mind when that pressure situation comes. I'm a huge tennis fan, so I think about this when I'm on the tennis court, but I think about it in a professional setting as well."
"Unreasonable Hospitality"
Amazon
In the book "Unreasonable Hospitality: The Remarkable Power of Giving People More Than They Expect" by Will Guidara, the co-owner and general manager of Eleven Madison Park describes how he manages his business, his customer-service style, and the things he'd do at Eleven Madison Park to go above and beyond.
Craig Kolwicz, an investment banker at Moelis, said the "unreasonable hospitality" described in the book (such as having an employee run out to get a hot dog for a customer who you overheard saying they hadn't had one in New York yet) isn't dissimilar to the type of service that could differentiate an investment banker.
"It depicts a restaurant that's an extremely expensive restaurant where there's an extremely discerning clientele base. They could go to all these other really fancy, really nice three-Michelin-star restaurants in New York or in the world," the 35-year-old managing director said.
"How do you differentiate yourself? There's a lot of investment bankers out there and there's a lot of really smart clients and folks that we work with all the time — and how do we get them to stay with us? How do we get them to hire us on the next deal? It's some of the stuff that we do," he said. For example, he'd recently flown to Los Angeles for an 11:30 a.m. pitch meeting and flown back.
"It's like hospitality, but it's kind of an unreasonable client customer service to do something like that," Kolwicz said.
Thanks to tax cuts made during the first Trump administration, Americans can give or hand down about $13 million in assets without paying federal estate tax. Only 0.2% of taxpayers have to worry about this tax, and they hire top-notch accountants and lawyers to pay as little as possible.
"This is a wealthy person's playground problem," Robert Strauss, partner at the law firm Weinstock Manion, told Business Insider.
Some of these tax avoidance techniques might be eyebrow-raising, yet they are perfectly legal. For instance, taxpayers can put homes and country homes in trusts that last decades and any appreciation in the property's value doesn't count toward their taxable estate. Life insurance, probably the least sexy area of financial planning, can be used to save tens of millions of dollars in taxes if bought from issuers in the Cayman Islands and Bermuda.
Currently, individuals and married couples can gift or bequeath $13.61 million and $27.22 million, respectively, before a 40% federal estate tax kicks in. That exemption is due to expire at the end of 2025, but it looks likely that it will be extended given the Republican Party's total control of Washington.
Here are 12 little-known techniques that the richest taxpayers use to pay less to Uncle Sam:
Using trusts to give away homes and country houses
Qualified personal residence trusts, better known as "QPRTs," effectively freeze the value of a real estate property for tax purposes. The homeowner puts the primary residence or vacation home in the trust and retains ownership for however many years they choose. When the trust ends, the property is transferred out of the taxable estate. The estate only has to pay gift tax on the value of the property when the trust was formed even if the home has appreciated by millions in value.
QPRTs have become more popular in the past year as interest rate hikes confer another tax benefit. It seems too good to be true, but there are a few strings attached.
Passing wealth to future generations with trusts that last up to 1,000 years
From the Wrigley family behind the titular chewing gum brand to Jeff Bezos' mother, an Amazon investor, some of America's wealthiest use generation-skipping trusts to avoid paying wealth transfer taxes and provide for future heirs.
These so-called dynasty trusts allow taxpayers to pass along wealth to generations that haven't even been born yet and only be subject to the 40% generation-skipping tax once. Many states have eased trust limits to get the business of the wealthy, with Florida and Wyoming allowing dynasty trusts to last as long as 1,000 years, which spans about 40 generations.
The heirs don't own the trust assets but rather have lifetime rights to the trust's income and real estate. These trusts even protect assets from future creditors and shield them in the event of a divorce.
iStock; BI
Giving to charity via trusts that also yield income
Plenty of affluent taxpayers deduct charitable donations from their taxable income, but the ultra-rich can parlay their philanthropy into guaranteed income for life.
Taxpayers put assets in the trust, collect annual payments for as long as they live, and get a partial tax break. Only 10% of what remains in the CRT has to go to a designated charity to pass muster with the IRS.
These trusts can be funded with a wide range of assets, from yachts to property to closely held businesses, making them particularly useful for entrepreneurs looking to cash out and do good.
Holding life insurance policies via trusts to save on taxes and protect heirs from lawsuits
Rich founders with illiquid assets can take out life insurance policies to cover their estate taxes. They get the most bang for their buck if they put the life insurance policy inside a trust rather than owning it directly. The irrevocable life insurance trust (ILIT) collects the death benefit, pays the tax bill, and distributes whatever is left according to the insured individual's wishes. Any payout is also protected from estate taxes, even if the insured's estate and death benefit exceed the exemption.
There are other perks. If the insured wants to make sure that their heirs are protected from creditors or divorcing spouses, they can use ILITs to be doubly safe. While the law varies by state, trusts and life insurance both have strong legal protections.
Using charitable trusts that give the remainder to heirs
Also known as the Jackie O trust since it was used by the late First Lady, a charitable lead trust or CLT makes annual payments to a charity or multiple. Whatever is left when the trust expires goes to a remainder beneficiary picked by the grantor, typically their children.
If the assets within the trusts appreciate faster than an interest rate set by the IRS at the time of funding, the beneficiary can even end up with a bigger inheritance. CLTs can also be used to discreetly transfer wealth while being publicly philanthropic.
"I've seen lawyers use these to plan for mistresses, to plan for children that perhaps the spouse doesn't know about," lawyer Edward Renn told Business Insider.
Getty; BI
Taking loans to pay estate taxes
Unlike QPRTs and CRTs, this technique is highly scrutinized by the IRS and comes with a lot of hoops to jump through.
Families that are asset-rich but cash-poor and facing an estate tax bill can either rush to sell those assets to make the nine-month deadline or take a loan.
The estate can make an upfront deduction on the interest of these Graegin loans, named after a 1988 Tax Court case. Further, if illiquid assets make up at least 35% of the estate's value, families can defer estate tax for as long as 14 years, paying in installments with interest, and effectively taking a loan from the government.
Graegin loans are prime targets for auditors and have led to years-long legal battles, but the savings can be worth it for rich families.
Buying offshore life insurance policies
Private-placement life insurance, or PPLI, can be used to pass on assets from stocks to yachts to heirs without incurring any estate tax.
In short, an attorney sets up a trust for a wealthy client. The trust owns the life-insurance policy that's created offshore. The assets in the trust are treated as premiums, and if structured correctly, the benefit and assets in the policy are bequeathed free of estate tax.
It's only relevant to the ultra-wealthy, often requiring $5 million in upfront premiums as well as a small army of professionals to set up and administer, including trust and estate attorneys, asset managers, custodians, and tax advisors.
Transferring depressed assets during a market slump
The down market has one silver lining for high-net-worth individuals. It is an optimal time to create new trusts as people can transfer depressed assets, whether they are stocks or bitcoin, at a lower tax basis.
The long-favored grantor-retained annuity trusts (GRATs) can confer big tax savings during recessions. These trusts pay a fixed annuity during the trust term, which is usually two years, and any appreciation of the assets' value is not subject to estate tax.
GRATs have picked up in popularity in the past year as the Federal Reserve has raised interest rates, which eat into the returns on these trusts.
The wealthy can save on taxes by putting their riches in trusts before the Trump tax cuts expire, but some don't feel ready to give their fortunes to their kids yet.
Luckily, there is a compromise. Using a spousal lifetime-access trust, also known as a "SLAT," married taxpayers can stash their fortunes in trusts that pay distributions to their spouses rather than giving assets to their kids. The beneficiary spouse can use this cash flow to fund the couple's lifestyle. After this spouse dies, the trust passes to new beneficiaries, typically the couple's children.
Buyer beware: divorce can mean losing those dollars forever. But millions in potential tax savings can be worth the gamble.
Using trusts that pay cash to spouses but keep the assets for the kids
When the wealthy remarry, they often have to balance the needs of their new spouse and their kids from a prior marriage. Trusts can be used to take care of the spouses, but the adult kids want their piece of the pie.
There is a way to make everyone happy. With a qualified terminable interest property trust, also known as a "QTIP," married taxpayers can put their fortunes in trusts that pay distributions such as stock dividends to their spouses. The income-producing assets, however, are untouched, and when the beneficiary spouse dies, everything in the trust is transferred to new beneficiaries, who are typically the adult children of the spouse who funds the trust.
The main benefit of QTIPs is peace of mind. If the beneficiary spouse remarries, they still get the cash, but they can't gift the assets to their new partner.
Getty Images; Jenny Chang-Rodriguez/BI
Transferring business assets to family-limited partnerships at big discounts
Sam Walton, the founder of Walmart, used a family limited partnership or "FLP" to save his kids and wife from paying any estate taxes on multibillion-dollar family fortune.
With an FLP, an individual — often a parent or two parents — pools their business assets, commonly real estate or stocks. As a general partner, the original individual can name their children as limited partners and give them interest in the partnership. The kids get cash distributions from revenue generated by the trust but do not have control over the actual assets. This control is appealing to parents who want to hold the purse strings.
Another sweetener: You can claim a discount on the assets transferred to the FLP and use even less of your estate-tax exemption. Though the IRS scrutinizes these discounts, they can be worth the gamble. The right lawyer can justify a discount of 45% or higher for less liquid assets, such as privately held businesses.
Giving stock to parents and inheriting it back when they die
Wealthy founders who built their businesses from the ground up face hefty capital gains taxes when they cash out. Instead of selling the shares outright, they can save on taxes by gifting their stock to their parents and waiting to sell the stock until they inherit it after their parents' death. These "upstream transfers" take advantage of a tax loophole for inherited assets that boosts the cost basis to its fair market value at the time of inheritance.
This tactic can also be used to save on estate taxes by ultra-rich entrepreneurs who have already used their exemption but have less-wealthy parents who haven't. They can stash the assets in a trust that benefits their parents until their passing and then their children. When the children inherit the assets, the federal estate tax doesn't kick in as long as the grandparents' estate does not exceed $27.22 million.
Lawyers warn that upstream planning comes with risks. Individuals can lose their assets for good if their parents decide to share the wealth with a new spouse or other children.
