Dear consultancy firms,
You frequently ‘phone and e-mail me to talk about the repo market. You want to pick my brains. No problem. I would like to pick yours. Occasionally, we have had an exchange of information, not necessarily a fair exchange but enough for me to be able to say that I have learnt something new.
Unfortunately, most of my conversations with you are monologues. This rankles somewhat, because I know that what I say will help you produce a report for which you will charge your client an hourly rate of which I can only dream.
So, why am I not being paid for my time? You may ask if I am worth my hire. Consider three recent calls that you have made to me recently.
Case one. A big well-known US-based global consultancy ‘phoned to talk about trends in the repo market. During our conversation, the consultants relayed some observations that their client had made about ‘clearing’. The comments sounded odd. Then, it dawned on me, that their client had been talking about ‘clearing’ as performed by central clearing counterparties (CCP), in other words, the mutual guarantee and multilateral netting of transactions. But the consultants thought the client was talking about ‘clearing’ in the sense of operational net settlement. It was not obvious that the consultants knew much, if anything, about CCPs. At a minimum, I saved them several hours wandering up a blind alley as well as the prospect of looking silly in front of their client.
Case two. An even bigger and better-known US-based global consultancy e-mailed me about tri-party repo. The consultant to whom I eventually spoke was startled to discover that tri-party repo in the US is critically different to tri-party repo in Europe. Without the steer I gave, the eventual report would have been unhelpfully US-centric and the consultant would have been embarrassed by the client discovering that the analysis was not globally applicable.
Case three. I was engaged by a major market utility to produce a feasibility study of a special repo project. Yes, I was acting as a consultant. The utility asked the consultancy arm of a Big Four accountancy firm to confirm my assessment of the impact of new Basel III regulations. Because these regulations are so important, I had assumed that the consultancy would have already conducted an internal assessment for the education of its own staff or that it would have done the work for another client. I expected we would swiftly get back a recycled version of this earlier work. In fact, what we got back was late, was largely a rehash of what I had written and was wrong (of all things, they misunderstood the accounting treatment of repo). I have no doubt that my work will be recycled to other clients. The galling thing was that their consultancy fee was much larger than mine.
So, consultancy firms, please feel free to call. If you can enlighten me about the challenges faced by your clients and the strategies they are exploring, I’ll be more than happy to enlighten you, where I can, on market architecture and microstructure, trading practice and other repo arcana. But if you really need to be educated, then show me your money. Come on one of my courses or, if you want my undivided attention, hire me. I have to pay my way in the world. It’s time you paid yours.