Gokul Laroia has risen swiftly through the ranks at Morgan Stanley and was named co-chief executive of Asia ex-Japan at the Wall Street firm on Friday.
Indian national and Hong Kong permanent resident Laroia will lead the region alongside Wei Sun Christianson, the first time the firm’s leadership team has hailed from the region.
Laroia has worked for Morgan Stanley in India, Singapore and Hong Kong in a variety of roles including co-head of Asia-Pacific investment banking, head of global capital markets, and head of institutional equities and wealth management in the region. The profitable equities division is Morgan Stanley's largest by revenue in the region.
The co-CEOs report to Colm Kelleher, president of Institutional Securities and chairman of Morgan Stanley International. “With Gokul and Wei heading our business in the region, we have two leaders with a wealth of Asian experience that will help us cement our leadership position in Asia Pacific,” said Kelleher in an emailed statement to FinanceAsia.
Laroia is succeeding Bill Strong, who is retiring from the New York-headquartered firm in May after three years.
Laroia said in an interview with FinanceAsia that he would continue his predecessor’s work in keeping a lid on costs and investing in areas such as electronic trading and cross-border businesses.
“We’re not a firm that leads with leverage – we lead with product,” said Laroia summing up the firm’s proposition to clients.
Under Strong’s joint leadership with Christianson the firm has focused on winning such cross-border M&A deals as Shuanghui International’s $7.1 billion bid for Smithfield, the largest Chinese acquisition of a US company on record. The firm is also close to Alibaba and could well capture a role on the Chinese Internet company's IPO when it happens. Morgan Stanley also invested heavily in trading technology. “I don’t see a big change going forward,” said Strong in an interview with FinanceAsia.
Apart from being co-CEOs both of them are hands-on running large businesses. Laroia is also keeping his role as head of institutional equities in the region and wealth management while Christianson is also China chief executive.
"I have known and worked closely with Gokul for many years. I very much look forward to working more closely with him in his new capacity," said Wei Sun Christianson, Asia Pacific co-CEO. Christianson has led the region’s operations in partnership with Bill Strong since March 2011.
Strong was also instrumental in bringing costs down at Morgan Stanley Asia in the wake of the global financial crisis. “Wei and I have very much focused on profitability and return on equity – we have moved away from a focus on only revenue. Profitability and return on equity are what investors in Morgan Stanley focus on,” said Strong.
In the last three years Morgan Stanley in Asia has managed to increase profitability from a reduction in controllable expenses and a rise in revenues.
Turning electronic bit by bit
Under Laroia's direction as head of the firm’s large institutional equities the firm has embraced electronic trading in Asia.
Laroia sees the seismic shift towards electronic trading continuing, albeit at a slower pace.
"Globally one of the most significant developments in equities has been the growing importance of electronic trading as a means of execution," said Laroia.
Morgan Stanley executes about 80% of flow in the US and close to that in Japan; across non-Japan Asia including Australia electronic execution has grown to around 50% of trading volume.
“There is a near-term margin compression but it builds into the business a massive amount of operating leverage,” he said.
Greenwich recently ranked Morgan Stanley as a top-three electronic trading firm in Asia. A few years ago Morgan Stanley was outside the top five rankings.
“We’ve created a really good platform that positions us well for future growth,” he added.
Helping offset lower margins driven by increasing electronic execution has been more business from hedge funds.
Over the past year, the vast majority of the hedge fund launches saw Morgan Stanley as either sole or joint prime broker said Laroia. “That market share is higher now than it ever has been before in the Asia Pacific region,” he added.
Cut costs and raise revenues
Laroia said the firm’s headcount is appropriate after some pruning in the wake of the global financial crisis.
“There continues to be excess capacity in this industry broadly. We are about right sized within 5% but we continue to keep an eye on headcount and if we have the resources in the right place – not every market is firing at the same time,” said Laroia over the telephone.
Morgan Stanley moved people from Asia-Pacific into Japan last year when Abenomics put a fire under the Japanese stock market and volumes doubled.
“We are focused on keeping costs down. From a headcount perspective we are very comfortable where we’re at and we are hiring very selectively,” said Strong. “We’ve made some of the easier cuts and now we’re working on the harder multi-year projects such as re-engineering back office operations,” he added.
In the wealth business, Laroia said: “We went after costs very hard over the first six months and we’ve put in place structure that will boost revenues in the longer term.”
At the same time as staying lean, Morgan Stanley is looking to maximise revenues by making sure it is part of fee events for investment banks such as large cross-border IPOs and M&A deals.
“The investment banking business is changing. Today it is more lumpy and it is absolutely critical to be on the top five elephant trades where the fees are concentrated,” said Laroia.
Morgan Stanley's revenues in Asia rose 63% to US$4.59 billion in 2013 from US$2.82 billion a year earlier.
Gokul, aged 47, has long been a rising star at Morgan Stanley. FinanceAsia has tracked his career and noted early on he seemed ear-marked for further promotion.
“He is highly regarded internally,” said one headhunter who works regularly with the US investment bank.
Gokul joined Morgan Stanley in 1995. During his tenure, he has worked in India, Singapore and Hong Kong while holding a variety of senior roles in investment banking, global capital markets and Asia equities sales and trading. This career path has given him hands-on experience in the firm’s largest businesses and groomed him for senior management.
He recently added Morgan Stanley’s Asian private wealth management business to his remit – part of Morgan Stanley’s alignment of its wealth management business with its institutional securities platform.
The firm is focused on the ultra wealthy whose needs are very similar to institutional investors.
“The Asia Pacific wealth business will be solidly profitable this year and our AUM is near record highs,” he said.
MUFG partnership gains traction
Morgan Stanley’s global partnership with Japan’s MUFG struggled to gain momentum after minting in the depths of the global financial crisis – but there are now signs it is working.
Morgan Stanley advised on Suntory Holding’s US$13.6 billion acquisition of US whiskey maker Beam – MUFG provided the bridge loan.
Morgan Stanley has been winning financing roles from blue-chip Japanese firms such as JAL, Sharp and Kobe Steel. Right now Morgan Stanley and Mitsubishi UFJ Securities are on the road with Japan Display ahead of its potential US$4 billion listing.
Laroia sees more opportunities ahead: “It’s a very powerful calling card to have MUFG and Morgan Stanley on the same page,” said Laroia.
“We’re beginning to get some traction,” agreed Strong, who knows MUFG’s Nobuyuki Hirano-san well, the man appointed to liaise with the Wall Street firm. They met up recently at the G-20 meetings.
Change at the top
The reshuffle follows notice from Strong early last year that he wished to retire from Morgan Stanley in May and return to the US.
Strong joined the firm in January 1993 in Chicago to run Morgan Stanley’s North American investment banking offices outside of New York.
In March of 2011, Morgan Stanley asked Strong to move to Hong Kong to serve as co-CEO of its Asia-Pacific businesses alongside Wei Sun Christianson and to join the firm’s global management committee.
During his three-year tenure in Asia Strong has been instrumental in making the firm’s regional business more profitable since his arrival in the region by tamping down costs.
“We’ve really tried to change people’s focus and attitude and tone, to act like owners and think where can we grow profitably and where can we not.
Strong was a strong advocate of the firm’s growth in Indonesia. Morgan Stanley acquired a seat on the Indonesian stock exchange in 2012. The broking license allowed it to trade and offer research in Southeast Asia’s largest economy – stealing a march on Wall Street rival Goldman Sachs.
Morgan Stanley's Jakarta office, which opened in April 2012, is the only meaningful office Morgan Stanley has opened in several years globally.
He also was instrumental in the decision to surrender Morgan Stanley’s banking license in India. It also sold its small Indian wealth management and mutual fund businesses as it could not see a route to scale nor an adequate return on equity within the next four or five years.
Morgan Stanley rose in the investment banking league tables last year to the top in M&A from eighth, and fifth place in ECM from ninth, and in DCM to tenth from fourteenth.
There have been some changes under his leadership. “We’re very focused on being organised in coverage of accounts and we’ve made changes to accelerate the velocity of ideas,” said Strong.
Last year its Asia-Pacific head of investment banking Kate Richdale left to join Goldman Sachs as a partner and was replaced by new co-heads of Asia-Pacific investment banking: Dieter Turowski and Shane Zhang.
Richdale had been the Asia-Pacific head of investment banking at Morgan Stanley since March 2011, sharing the role with Laroia for two years.
Strong was appointed a member of the Financial Services Development Council by Leung Chun-ying, chief executive of the Hong Kong Special Administrative Region, in January 2013.
Strong is also a member of the council of advisors to the Hong Kong Treasury Markets Association, the Global Advisory Board of the Kellogg School of Management of Northwestern University and the American Institute of Certified Public Accountants.
Strong is an adjunct professor in the Finance Department of The Chinese University of Hong Kong. He was a member of the Board of the United States Military Academy at West Point, New York.