ISDAs are not only for celebrity investors. A cohort of lesser-known senior bankers and fund managers who don’t appear on the front pages have used the wealth and connections they’ve built up in the finance industry to gain access.
Sofiane Gharred, 39, made his fortune trading credit derivatives. When serving out a non-compete period in 2014 before starting his hedge fund Selwood Asset Management, he signed an ISDA with Citigroup Inc. and traded the riskiest portions of credit default swap indexes, according to people familiar with the matter.
Gharred, who was born in Tunisia and studied in Paris, declined to comment on his personal investments. He said he has not placed any personal trades since starting Selwood in London in mid-2015 and that managing his own capital “has never been a final aim.” Selwood grew its assets under management to $1 billion in its first two years.
To trade swaps and other OTC contracts with Citigroup, an individual must have a net worth of at least $25 million, $5 million or more of which must be deposited in an account with the bank, according to people familiar with the matter. Goldman Sachs and JPMorgan Chase & Co. require greater wealth, the people said, although in most cases the guidelines can be tweaked for long-term clients.
A spokeswoman for Citigroup declined to comment on the firm’s derivatives dealings with individuals.
Pasi Hamalainen, a former managing director at Pacific Investment Management Co. in California who retired in 2008 at 41 to raise his son and race Bugattis, had ISDA agreements with Citigroup and Goldman Sachs, according to a person familiar with the matter. The Finnish native, who was a member of Pimco’s investment committee and head of global risk oversight at the company, traded interest-rate swaps and currency derivatives with the U.S. banks between leaving Pimco and joining Capital Group Cos. in 2012, the person said. Hamalainen died in 2014.
Kieran Goodwin, the former head trader at King Street Capital Management, traded with an ISDA between leaving the fund in 2010 and starting his own firm in 2012, New York-based Panning Capital Management, according to a person familiar with the matter.
Hedge fund manager David Peacock also previously had an ISDA, according to people familiar with the matter. A spokeswoman for Peacock, who started his career in JPMorgan’s pioneering credit-derivatives business in the 1990s and is now a partner and co-head of corporate credit at Cheyne Capital Management in London, declined to comment.
Wealthy individuals were something of an afterthought for the bankers and lawyers that created the agreement for the International Swaps & Derivatives Association, or ISDA, according to Jeff Golden, a former senior partner at the law firm Allen & Overy. He was among the authors of the original 1987 agreement and all subsequent updates.
Derivatives are not just for speculation, though. After taking out a floating-rate mortgage on a house in Kensington, London’s most expensive borough, Guido Filippa signed an ISDA contract with Goldman Sachs to protect against rising interest rates.