Eric Cantor and Ken Moelis, the chairman and chief executive officer of Moelis and Co.
Eric Cantor ended a Washington-to-Manhattan parlor game early Tuesday morning with the announcement that the ousted House Majority Leader would be joining the boutique advisory firm Moelis and Co. as a vice chairman, while also founding its Washington, D.C. office, and joining its board of directors. In a statement, the firm said that Cantor "will provide strategic counsel to the Firm's corporate and institutional clients on key issues" and "will play a leading role in client development and advise clients on strategic matters."
The path from Congress to the financial industry is a well-trodden one and was widely expected to be the course for Cantor following his resignation in August after a shocking primary loss to conservative economics professor David Brat. But his specific destination — an advisory shop (not a bank), that was only founded in 2007 and just went public earlier this year — reflects two broad trends. One is the rise of smaller, "boutique" firms that even the biggest companies go to for merger and restructuring advice, and the second is (perhaps) a new modicum of stigma attached to moving directly from Washington to a bailed-out megabank.
In the statement announcing the move, Moelis said that Cantor "will provide strategic counsel to the Firm's corporate and institutional clients on key issues" and "will play a leading role in client development and advise clients on strategic matters." In an interview with the Wall Street Journal, Moelis said, "I have no need for a political figurehead" and that Cantor would help open the firm's Washington office. He also praised Cantor's "judgment and experience."
Moelis and Co. was founded in 2007 by veteran UBS dealmaker Ken Moelis. While it describes itself as an investment bank, it's not a "bank" in any meaningful sense, and certainly not a hybrid megafirm like Citigroup or JPMorgan Chase (which combine trading, advisory, and retail banking businesses) or even a Goldman Sachs and Morgan Stanley, which do some banking activity and are overseen by banking regulators.
The firm's business is entirely advisory: it collects fees from companies for advice on mergers and acquisitions, other transactions, and restructuring. It doesn't have a trading business, it doesn't take deposits, and, absent a massive expansion and transformation over decades, won't ever become a too big to fail institution dependent on aid to survive during a crisis.
Despite Moelis's relatively small scale, it will still be able to compensate Cantor handsomely. The company disclosed in a regulatory filing that Cantor's annual base salary will be $400,000, along with $400,000 cash and $1 million in restricted stock to start. In 2015, he'll get another $1.2 million in cash and another $400,000 in restricted stock. Cantor's estimated net worth in 2012 was $9.3 million, according to OpenSecrets.
Moelis is one of many boutique shops that have started to gain ground in recent years as larger investment banks have consolidated into a few major firms and some corporations seek out advice from companies that don't have the myriad conflicts of interest of their competitors.
Other publicly traded boutiques include Greenhill and Evercore (headed by former Clinton Treasury official Roger Altman), while Paul Taubman, the former head of M&A for Morgan Stanley, moved up the league tables last year nearly entirely on his own by advising on Verizon's $130 billion acquisition of Verizon Wireless. Last year, Moelis was 13th among all banks in global merger and acquisitions with some $129 billion worth of deals, according to Dealogic. It's 27th so far this year, with only $38 billion worth of deals. Its standing was hit by the collapse of the megamerger between advertising giants Omnicom and Publicis earlier this year, in which Moelis had served as Omnicom's advisor.
In its registration to go public earlier this year, Moelis described its narrow business as a potential competitive disadvantage: "Our primary competitors are large financial institutions, many of which have far greater financial and other resources than us and, unlike us, have the ability to offer a wider range of products, from loans, deposit taking and insurance to brokerage and trading, which may enhance their competitive position." At the end of 2013, it had 317 bankers and 263 fee-paying clients.
That Cantor would join a financial firm is no surprise. Canton was one of the industry's favorite politicians, having supported the Troubled Asset Relief Program in 2008 despite rank-and-file opposition in his own party. In his final election cycle, his campaign and leadership PAC attracted $1.375 million in donations from the financial industry, with the biggest donor being Goldman Sachs, whose employees and political action committee kicked in $131,000, ahead of the private equity firm Blackstone, whose employees and PAC donated $103,000, according to data from OpenSecrets. Cantor's wife, Diana, also works in the financial industry, for the investment firm Alternative Investment Management.
In an interview after Cantor's primary defeat, Goldman Sachs CEO Lloyd Blankfein told CNBC that the election result was "stunning" and that "Eric Cantor in my view was a sensible politician who devoted himself to public service." Another major Wall Street figure who donated to Cantor's leadership PAC was Ken Moelis, who donated $5,000 to the Every Republican is Crucial PAC in 2013 and 2014 along with a $19,800 donation to the National Republican Congressional Committee $2,600 to Cantor's campaign in 2014. Moelis said in a statement that "Eric has proven himself to be a pro-business advocate and one who will enhance our boardroom discussions with CEOs and senior management."
Typically, when elected officials and senior policymakers move into the financial industry, it's into large banks or private equity firms. The Carlyle Group, based in Washington and co-founded by former Carter administration staffer David Rubenstein, was one of the first to employ high-profile politicians. Former British prime minister John Major was the firm's Europe chairman from 2001 to 2004, while former Secretary of State and Treasury James Baker served as a senior counselor. The investment firm Cerberus has both Bush-era Treasury Secretary John Snow and Dan Quayle in chairman roles. More recently, former CIA director David Petraeus joined KKR as the head of its internal think tank, the KKR Global Institute. Former Treasury Secretary Tim Geithner is president of the firm Warburg Pincus.
These heavyweights can have relationships with the wealthy individuals and even countries that private equity firms turn to raise money for their buyout funds. Private equity firms, which typically buy out public companies using debt, are also intensely controversial and frequently face criticism and even legislative efforts to curtail them.
Big banks have also long hired high profile government officials. Treasury Secretary Jack Lew was a senior executive at Citigroup from 2006 to 2008, where a former Treasury Secretary, Robert Rubin, was executive chairman. Thomas Nides, now Vice Chairman at Morgan Stanley, was a Deputy Secretary of State for two years after being Chief Operating Officer at the investment bank for five years. The investment bank's lead independent director, Erskine Bowles, served as Bill Clinton's chief of staff, and after that worked at the private equity firm Forstmann Little. He is also an advisor at Carousel Capital, the investment firm he co-founded in 1996.
In 2011, Morgan Stanley poached Harold Ford, who served in Congress representing Tennessee from 1996 to 2007, away from Bank of America. Obama's first head of the Office of Management and Budget, career government-and-think-tank wonk Peter Orszag, joined Citigroup in 2010 as the vice chairman of its investment banking business where he earned some $3.6 million in 2012. President Obama plucked Richard Daley from JPMorgan, where Daley was Midwest Chairman and head of corporate social responsibility, in early 2011 to serve as his chief of staff (Daley had been Commerce Secretary in the Clinton administration).
With speculation that Cantor may one day return to politics, perhaps running for governor in Virginia, a boutique firm may be able to offer to voters what it offers to clients: a lack of conflicts.