More Thoughts on Rick Sherlund (ex Goldman Sachs) Leaving Galleon Group

OK, so I really doubt that Rick was involved in anything nefarious. He made so much money over 25 years at Goldman that he really doesn’t need more. As a sell-side analyst, you spend a LOT of time uncovering really interesting and market moving issues about the companies that you cover. Then you have to publish those items, and let everyone else know what it took you a long time to figure out. The irony is that these PMs will crap on you while taking your information and trade on that information. Given the wealth being generated by a lot of these hedge fund managers, it’s no wonder that the natural move of any sell-side analyst is to move over to the buy-side as a Portfolio Manager.

I’ve run across Rick a few times when I covered the same companies, but I didn’t know him. I would listen to him asking questions at various Analyst days, and I learned to focus on questions that would tweak the financial model, rather than worry about a lot of the bigger picture technology issues that tried to show management how “smart” you were. That was smart on his part because regardless of the issue, the PM would always ask you how it affected revenue and earnings, and hence, what was the stock really worth. Focusing on the financial model disciplines you to think about how it affects valuation, so you will always be able to answer the valuation question.

When Rick left Goldman in early 2007 to join Galleon, he began to manage a portfolio, so I wouldn’t be surprised to learn that his motivation to leave was to manage money and trade on his own ideas.

In 2007, Galleon was “the” place to join, and given Rick’s high profile career at Goldman, Rick could join any group he wanted.

Then it gets tough. Your portfolio has to generate above benchmark returns.

So, 2008 was a complete write-off for the industry, and the first three months of 2009 looked worse. What happens now?

Well, the market goes up 65% in 6 months, and if you’re holding a large proportion in cash, you are falling behind.

What were Rick’s numbers like? To be brief, I have no idea. However, let’s posit the following scenario.

Raj comes into Rick’s office and asks him how he plans to improve his numbers because they’re crappy. Rick is doing the same things that he did as a Sell-side analyst, and works his platinum rolodex to find out key information about the internal operations of a company. Raj tells him to start working that Rolodex harder since Ray just made some trades based on key information that he “learned” – which we now learn was obtained illegally.

I have no idea whether this happened, but if it did, I can understand why Rick left Galleon.