What would JP Morgan do with Arminio Fraga?

June 21, 2010
looking to buy Gávea Investimentos, along with (one presumes) its founder, Arminio Fraga.

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Citigroup famously paid $800 million for a young and doomed hedge fund, Old Lane, just so that it could hire its founder, Vikram Pandit. No one thinks that decision was a good one, in hindsight. But JP Morgan is setting its sights rather higher, looking to buy Gávea Investimentos, along with (one presumes) its founder, Arminio Fraga.

The price would certainly be higher than $800 million, but then again Arminio (as he’s universally known) is a much juicier catch than Vikram. After cutting his teeth successfully running large amounts of money for George Soros, he more or less singlehandedly gave much-needed credibility to the Brazilian central bank in the wake of the Russia crisis and through Argentina’s default. Facing a monster liquidity crisis and spreads of more than 2,000bp over Treasuries, Fraga navigated the markets and the multinationals masterfully, setting the stage for the improbable yet lucrative embrace of Lula’s left-wing government by the international markets.

Now that Arminio has become dynastically wealthy through setting up Gávea, he might just see one last act left in his life, taking over the House of Morgan and solving Jamie Dimon’s succession dilemma. But he’s only one year younger than Dimon, who shows no signs of wanting to leave, and in any case it’s hard to imagine Arminio moving back to chilly New York from his beloved Rio.

That said, I can’t imagine that JP Morgan would be happy simply leaving Arminio where he is; at the very least they’d be likely to give him some sort of oversight at Highbridge. That would quintuple Arminio’s assets under management at a stroke. My guess is that a JP Morgan board seat is probably on the table as well. Whatever makes Arminio happy: there’s really no point in JP Morgan buying Gávea if he just turns around and leaves shortly after the acquisition. His investors are loyal, and their money would be sure to follow him out the door.

One thing I can’t quite understand, though: why is JP Morgan putting what is presumably quite a lot of effort into trying to acquire Gávea now, given that they’re not going to close until after the financial regulatory reform bill has been signed and there’s a lot more clarity on what they’re allowed to do on the buy side? Why not wait and see how powerful the Volcker rule ends up being, before getting deep into negotiations? Is there urgency here to buy Gávea? And if so, what is it?

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