Crossing the Rubicon

Happy Friday everyone. I hope you had a good summer. I did a Grand Tour of Europe, visiting Berlin, Prague, Vienna, Ljubljana, Zagreb, Sarajevo and many of the lakes, mountains and coastal regions in between. If you’re visiting any of these places and want some tips, drop me a line.

Although writing took a break while I was travelling, podcasts continued for paid subscribers. In case you missed them, I spoke with Huw van Steenis about private credit, Ben Hunt on market narratives and Tim Levene on fintech investing. Next week I’ll be releasing an episode with Tom Hayes, the trader imprisoned over the LIBOR scandal whose conviction was recently overturned. To access it, be sure to subscribe here.

For now, though, it’s back to our regular Friday programming. One firm I’ve been thinking a lot about lately is Jane Street. It came under the spotlight a few years ago after the publication of Michael Lewis’s book, Going Infinite: “By 2014, when Sam started as a full-time trader at Jane Street Capital, the financial institutions at the center of markets – those setting the prices of global assets – were not the old investment banks but opaque high frequency trading firms, like Jane Street, that basically no one had ever heard of,” he writes. Lewis later admitted that he started talking to Sam Bankman-Fried partly as a means to get access to Jane Street, about which he dedicates two chapters of his book. “The sums of money made by the people who ran these places were orders of magnitude greater than what the people who ran the big investment banks had ever made.”

These days, Jane Street is hard to ignore. In the second quarter of this year, it generated $10.1 billion of net trading revenue, taking its total for the first six months to $17.3 billion. That’s more than Goldman Sachs earned in trading ($16.4 billion) and almost as much as JPMorgan ($18.6 billion). With 3,000 staff, it translates into $11.5 million of annualised revenue per employee – significantly more than those two investment banks, and more than almost all technology companies with the exception of high-rent network monopolies such as OnlyFans and Valve.

Jane Street’s strong performance shows up in other metrics, too. Its profit margin in the second quarter was 68%, which compares with 32% at JPMorgan and Goldman Sachs (although theirs includes advisory activities ...