A Different Kind of Wall Street Board Meeting

Contributor: Marcus Cree

Friday August 17, 2012 sees a most unusual board meeting in downtown New York. Representatives from the largest banks on Wall Street, private equity firms, and Main Street gathered at Pier 40 for what may be the most cordial coming together of year. I am lucky enough to be at the event.

It is, of course, the start of the 2012 SEAPaddleNYC, a 26½ mile stand up paddle board race around the island of Manhattan, taking in the Hudson, Harlem and East Rivers, ending at the foot of the historic Brooklyn Bridge. Board shorts and bikinis replace the suits and dresses that each racer would normally be wearing on a weekday morning, allowing the investment bankers, traders, risk managers and others to mingle and chat as they await the 8:00 a.m. start.

Especially interesting is the intersection of professional and private life, and specifically how well the risk advice we give out to financial firms is applied in this most practical of situations.

To begin, we can look at the top-down view of the event and consider what risks we should be concerned with, their potential outcomes and how to mitigate them.

This would start with fitness. This is far and away the highest risk category considering that the race entails:

• Standing in the mid-summer New York heat for up to eight hours (the time it took me last year!)
• Paddling consistently for the entire duration of the circumnavigation of the island
• Being in three reasonably fast-flowing rivers throughout the event

The concept of not being able to complete the race introduces the possibility of the worst case outcome, drowning.

The only answer here is to never underestimate the risk and the undertaking, and to train for several months beforehand. This is very similar to marathon training, and effectively requires that the total training miles covered is a multiple of the miles in the actual event. That in turn means putting in “on water” miles in the summer midday sun for many weekends prior on top of daily gym sessions. The easy-to-overlook piece is the “in exercise monitoring” of your own physical state and the recognition of the onset of exhaustion before it prevents your ability to at least make the river bank.

However, fitness will get you so far. Proper equipment is the second essential risk mitigation. The boards themselves come in two flavors; those designed for surfing/ leisure and those designed for racing. For shorter races of six or seven miles, the surf boards will suffice, but for distances of ten miles or more, a racing board that is flat, wedged-shaped (to cut through swell), and light is essential. I participated in the same event last year using a surf board, and this was the main reason for my eight-hour finish time.

The third risk consideration, in terms of the intangibles, is understanding the environment. This relates to understanding the tidal gates between rivers, and knowing when certain milestones have to be reached before the flow against the paddler will result in furiously “standing still” at maximum, muscle-sapping effort. A race strategy has to be built around those flows, and success can only be achieved by working within them, not against them. Rivers around New York all have different ebb and flow times, but these can be worked out mathematically from the Battery Park high tide. Paddling without this knowledge is akin to investing in a product with no idea of the risk factors inherent in that product.

In the paddle board race, there are things that can be controlled, but there are also risks that are completely outside of our control, which include water state and weather.

While a river has reasonably predictable flows, the quality and state of that water is highly dependent on upstream factors such as sewage spillage (an example of which occurred just nine days before this race). The key is to understand what has happened to the water recently, and what the consequences are for contact with and drinking of the affected water. If the risk is a direct contact risk, then the only prudent thing is not to compete, , but if the risk is in the drinking, then carrying your own water supply (with a one way valve!) and being disciplined not to allow any river intake on the inevitable spills will mitigate this effectively.

Weather also poses some interesting questions to the risk-aware racer. What weather is dangerous, and what weather makes the event untenable? Heat is dangerous, but carriage of water and sunscreen should prevent it being a deal-breaker. Thunder and lightning are something else. Actual lightning versus possible lightning becomes a paddler’s choice (and a test of faith in forecasters probabilities), while sheet lightning versus streak lightning becomes the on-water difference between an interesting light display in the clouds and a terrifying odyssey.

In the end, as with all risk analysis, the object is not to remove all risk, but to understand the risks involved and to proceed or not, with those risks in mind. Part of the fun is taking the risk, just as investment banking can be seen as a collection of monetized risks, but the key is to minimize the risks that can be minimized, and to take on the others in the most calculated way possible.

Now, bring me that horizon!

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