"So let's go with the basics and explain to me what that really means."
French smiled broadly. Justin didn't know if he was smiling because he liked teaching people what he did or whether he just liked talking about how much money his company made. "The prime brokerage business is a direct beneficiary of the growth of the hedge fund business. And the hedge fund business has become, by far, the most-how shall I put this-active segment of the asset management business."
"Active meaning lucrative?"
"When it works," French said. "When it doesn't work, it results in the biggest losses."
"So it's the most unstable."
"We don't really use that word around here. Let's just say it's the most volatile."
"Okay. Keep going."
"Twenty years ago, money that was managed by hedge funds was probably somewhere around thirty, thirty-five billion dollars. Now it's substantially over a trillion. There's no other segment of the financial world with anywhere near that kind of growth and profitability. But, as a result, there's more and more competition. That's normal and it's probably healthy, but it also means you have to be more aggressive and you have to be good. You have to be better than your competitors, which means you need every edge you can get. So a lot of hedge funds hook up with companies like ours who can provide prime brokers, which helps give them the edge they need. We provide securities to cover short sales, make margin loans, clear trades, provide reporting services and custody assets, provide research. And we even help hedge funds raise money. As a prime broker, we probably execute twenty-five to thirty percent of a hedge fund client's transactions. We also provide a daily NAV-"
"Sorry," Justin said. "I'm a little rusty with my financial acronyms."
"Net asset value."
"That it? No free tennis lessons and shiatsu massage?"
"If need be. We provide whatever is necessary. We can set up a rudimentary risk management system for our clients; we'll find office space as a hedge fund company expands; we'll find someone an operations officer and traders; and, if necessary, we can even provide the accounting system."
"I assume you're not doing this out of the goodness of your heart."
"That's a phrase that no one even understands on the Street."
"So explain to me how you make enough to justify this extremely impressive office and your suits that cost more than most people's rent."
"We get commissions from every single trade and order flow."
"At no risk."
"We handle the transactions; we're not putting our own money in. And hedge funds probably account for a third of our trades now."
"You want to tell me how much that might come to a year?"
"We don't give out our financial figures," French told him.
"But if I say 'a lot' I'm not going to be far off," Justin said.
"No. That would be extremely accurate. But we also do a lot of margin lending, and that's at least as profitable."
"So you did all of that for Ascension?"
"As I said, and quite a few other hedge funds. We have many resources that smaller firms, money management companies and funds like Ascension, don't have. We can get better deals, get in earlier than other companies, sometimes get in on an investment opportunity when other firms can't get in at all. One of our jobs, one of the key aspects of Ellis's job, is to bring money in to those deals. Let's say one of our clients wants to raise three hundred million dollars in an IPO. We'll certainly have a share of that, if not the entire thing. We might need to raise half, a hundred and fifty million. So we go out and get it."
"And you might get it from Ascension? Telling them this is a good investment."
"Sure. But as I keep saying, we go to many other hedge funds like Ascension. We don't put all our eggs in one basket. Or even a hundred baskets."
"So Ellis is a salesman in a lot of ways."
"Yes. He's a salesman and an adviser and an investor and a deal maker."
"Can you walk me through a typical day-to-day deal?"
"I don't think it's appropriate for me to give you real cash numbers-"
"Just hypothetical. I want to make sure I understand the relationship."
"Is this really relevant to your investigation?"
"It might be. I can't say for sure until I know a lot more of the facts. And the background."
"You don't think Ellis has anything to do with what happened to Evan?" French asked. He didn't seem particularly horrified or shocked at the thought. More curious.
"I didn't say that. I'd just like to understand the kinds of relationships Harmon had with people who he worked with. It's very unlikely that Evan was killed by someone he didn't know. The odds are it was someone he knew extremely well."
"All right," French said. "Let's say the head of research into new media comes up and says we should invest in… oh… companies that are working on technology to make it easy to download original product into iPod-like devices. Got that?"
"So far."
"Let's say they've come up with a way to do it for audiobooks."
"Don't listen to them. I like to read the real thing."
Justin watched as French did his best not to roll his eyes. The executive stayed polite, and he barely hesitated before continuing his explanation. Justin was impressed. It was one of his best things: annoying people to see how they responded. French must have spent a lot of his days being annoyed by a lot of people because his response was to simply keep going. Didn't change his demeanor when caught in a lie, didn't flinch when aggravated by stupidity. No wonder he was a success on Wall Street, Justin decided.
"We have the resources to research which companies have the best technology and the greatest upside. Which companies are most likely to survive some very strict competition. We make our call; Ellis goes to Evan Harmon, says we think this is an area you want to invest in, here's the result of the data we've put together; Evan comes back to us and says, 'Okay, we're in, we're good for X dollars.'"
"X being a substantial amount of money."
"Very substantial in some instances," French said.
"That three hundred million you mentioned earlier-that's not way out of line."
"It can be less than that. Certainly for a company like Evan's. But the total overall can be more."
"And if Evan Harmon says no?"
French shrugged. "Then he says no. We move on to someone else."
"But a rejection could hurt St. John's pocketbook, right?"
French thought about this for a moment, then shrugged noncommittally. "It's possible. Our salespeople are expected to bring in a certain amount of money, and their bonuses are based accordingly. But for it to affect Ellis, it would have to be a lot more than one turndown."
Justin wondered if Daniel French's brown hair ever got mussed. Or even moved. Or if his three-piece suit ever got a little tight. Probably not, he thought. He wondered if French was wondering right now if he, Justin, ever wore a sport coat that actually fit.
"What if Ascension took its business elsewhere?"
"It happens all the time. People move around. Hell, we're not the only broker used by Ascension. They have several sources." French looked at his Rolex. Still no sign of impatience, even when he said, "Is there anything else I can do for you? I do have a substantial amount of work to do."
Justin nodded, determined to be just as polite as his corporate host, and he said, "I'd heard that Evan was not exactly thrilled with the job Ellis has been doing."
French looked surprised. "Where did you hear that from?"
"Is it true?"
"Not remotely."
"So he wasn't thinking of firing him."
"That's absurd."
"How can you be sure?"
"Because it's the kind of thing I'd know. I'd have to know it. We do a lot of business with Ascension-a lot of buying for them and a substantial amount of consulting and partnering. If Evan had any problem with any relationships, I'd know about it."