The Rise of Rich & The Founding of the Modern Trading House: Mark Crandall Part 1

Summary

The HC Commodities Podcast

Episode: The Rise of Rich & The Founding of the Modern Trading House: Mark Crandall Part 1

Host: Paul Chapman, HC Group
Guest: Mark Crandall
Release Date: October 29, 2025

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Episode Overview

This episode—the first of a two-part interview—dives into the origins of modern commodity trading through the career and insights of Mark Crandall. Once a young analyst at Morgan Stanley, Crandall became integral to the evolution of trading houses, joining Marc Rich & Co. during a period of dramatic industry transformation. The conversation traces Crandall's journey from traditional finance into pioneering physical and financial commodity markets, explores the birth and dominance of the trading house model, and details the complexities, relationships, and decision-making that shaped the industry giants of today.

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Key Discussion Points & Insights

1. Mark Crandall’s Early Entry into Commodities

• Morgan Stanley Beginnings:

  • Crandall joined Morgan Stanley straight from college (1980), just before commodities trading became significant on Wall Street (01:43).
  • "I got out of college...and through a personal friend I got introduced to Morgan Stanley and they hired me as a young analyst in the strategic planning department." – Mark Crandall (01:44)
  • Assigned to initiate and develop Morgan Stanley’s commodities division, focusing initially on gold and silver, later expanding into oil as futures markets emerged.

• Decoding the Markets:

  • Morgan Stanley's commodities desk began by mimicking J. Aron (Goldman Sachs) and LME operations, soon seeing opportunities in oil as forward markets like Brent and WTI developed (03:50).
  • They quickly realized the potential in connecting physical and paper markets, which was pioneering at the time.

• Learning the Trade:

  • Commodities knowledge was scarce inside Morgan Stanley, leading to talent acquisition from oil companies (notably John Shapiro from Conoco, and a hire from Sun Trading) to bridge that gap (06:04).
  • The newly introduced WTI futures (NYMEX) required communication and trust-building with European refiners unaccustomed to these instruments.

2. Compensation and Culture Shift on Wall Street

• Trading Culture's Arrival:

  • Morgan Stanley was, at the time, a "white shoe," gentile, corporate finance-driven bank, slow to adopt trading culture compared to Goldman or Salomon Brothers (09:24).
  • The integration of trading desks—including currency and commodities—created internal culture shock.

• Compensation Evolution:

  • Early compensation did not differentiate commodities traders, but as profit potential grew, bonus culture blossomed, setting up future tensions and models seen later in physical trading houses.

3. Moving to Marc Rich & Co.: The Bridge from Wall Street to Physical

• Joining Marc Rich:

  • Crandall moved to Marc Rich via a family connection; his soon-to-be brother-in-law worked there and recognized Crandall’s unique financial perspective (12:47).
  • Rusty trading concepts—like contango and backwardation—were introduced to oil markets, which had previously lacked robust forward structures.

  “Some of the financial concepts which are completely routine now...things like contango and backwardation...in that era they didn't exist in oil markets because...there really wasn't one.” – Mark Crandall (14:17)

• Adoption of Analytics:

  • Crandall’s team built a primitive Black-Scholes-based options pricing model in Lotus 1-2-3 to price gold and silver, revealing that much of the market still ran on intuition (15:15).
  • The systematic use of pricing formulas and risk models was a radical innovation.

4. The Allure and Structure of Physical Trading

• Motivations to Leave Wall Street:

  • Despite a successful trajectory at Morgan Stanley, Crandall was attracted by the “exciting world of real oil,” which included exposure to global politics, human relationships, and on-the-ground logistics (17:34).
  • “There's humans involved, there's oil ministers, there's government policy, there's security concerns...all the things that have always lured people into the oil market.” – Mark Crandall (18:50)

• Early Skepticism about Financial Markets:

  • Both Morgan Stanley and Marc Rich knew financial trading would become important, but did not foresee its massive scale and impact on global trade (20:11).

5. The Marc Rich Legend

• Impact and Legacy:

  • Marc Rich & Co. fundamentally changed oil trading, unlocking opportunities by arbitraging between official selling prices and the true market rates, and exploiting the inefficiencies leftover from the oil price shocks of the 1970s (21:43).
  • “If you owned the capacity, the logistics or the contacts…solving problems in time, you know, location and form…became incredibly lucrative.” – Paul Chapman (24:10)
  • The rise enabled by geopolitical events and sharp, sometimes controversial, business practices.

• Gray Areas and Controversy:

  • The infamous "skullduggery"—activities like circumventing US sanctions or exploiting dual-market pricing—were not always illegal globally, even if frowned upon (and sometimes prosecuted) in certain jurisdictions (26:57).

  "There were things that the major trading houses did that were, for example, against the law in the United States, but not against the law anyplace else, and may not even have been a bad thing to have done, but they did them anyway." – Mark Crandall (26:57)

• Marc Rich as a Leader:

  • Despite media infamy—e.g., Giuliani’s legal pursuit—Crandall describes Rich as reserved, loyal, and a master recruiter/leader, not necessarily as a market savant (29:34).
  • "His distinguishing characteristic was he was a great recruiter of people and leader of people." – Mark Crandall (31:12)
  • Success at Marc Rich reflected not just sharp trades, but the ability to form and maintain global relationships and manage teams.

6. The Concentrated Power of Relationships in Physical Trading

• Teamwork vs. Lone Wolves:

  • Unlike Wall Street, where individual traders could claim direct ownership of profits, physical trading was inherently collaborative, involving a network of relationships with producers, governments, shipowners, and others (33:37).
  • "You needed a personal relationship there...Suddenly you're talking about three or four or five people that need to be involved to execute that trade...You can't just pick up the phone and buy it." – Mark Crandall (35:32)

• Barrier to Entry and Moats:

  • Building these trustworthy, global teams took time—making it extremely hard for new entrants, contributing to the dominance of giants like Glencore and Trafigura (37:31).

7. The Evolution of Compensation Models in Trading Houses

• Why the Wall Street Percentage Model Didn't Work:

  • Physical trading firms recognized collective effort and teamwork, using pooled bonus systems rather than individual percentage-based compensation, reflecting the collaborative nature of the business (39:20).

  "It is one of the all important things." – Mark Crandall on compensation structures (39:56)

• Role of Management:

  • Top leaders were responsible for balancing and distributing collective rewards in a nuanced fashion, key to maintaining unity.

8. Marc Rich’s Leadership Team and the Birth of Trafigura & Glencore

• Generational Change and Ownership:

  • As original partners left, Rich’s ownership became more concentrated, leading to internal tension about future leadership and ownership structures (43:27).
  • By the early ‘90s, key lieutenants (Billy Stratharter, Claude Dauphin, Danny Dreyfus, Manny Weiss) emerged as the true operational heads, setting the stage for the split that would give rise to Glencore and Trafigura (47:38).

• Structural Disputes:

  • Tensions rose as Rich, increasingly isolated and less involved in day-to-day management, brought in external advisors and lawyers, leading to leadership departures and the eventual restructuring of the business (52:16).

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Notable Quotes & Moments (with Timestamps)

• “I got out of college...and through a personal friend I got introduced to Morgan Stanley and they hired me as a young analyst in the strategic planning department.”
  – Mark Crandall (01:44)

• “Some of the financial concepts which are completely routine now...things like contango and backwardation...in that era they didn't exist in oil markets...”
  – Mark Crandall (14:17)

• “We took the original Black Scholes paper and copied the formulas...into 1, 2, 3 and built a really primitive options pricing model.”
  – Mark Crandall (15:15)

• "There's humans involved, there's oil ministers, there's government policy, there's security concerns...all the things that have always lured people into the oil market."
  – Mark Crandall (18:50)

• “If you owned the capacity, the logistics or the contacts…the capacity to get that oil from those doing hard things in hard places...suddenly became incredibly lucrative.”
  – Paul Chapman (24:10)

• "There were things that the major trading houses did that were, for example, against the law in the United States, but not against the law anyplace else, and may not even have been a bad thing to have done, but they did them anyway."
  – Mark Crandall (26:57)

• "His distinguishing characteristic was he was a great recruiter of people and leader of people."
  – Mark Crandall (31:12)

• “You needed a personal relationship...Suddenly you're talking about three or four or five people that need to be involved to execute that trade...You can't just pick up the phone and buy it.”
  – Mark Crandall (35:32)

• “It is one of the all important things.”
  – Mark Crandall on the importance of compensation structure (39:56)

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Important Timestamps

• 01:43 – Crandall’s entry into Morgan Stanley and early commodities market development
• 06:04 – Hiring industry veterans to bridge physical and financial markets
• 14:17 – Explanation of contango and backwardation in oil
• 15:15 – Building Black-Scholes options model in Lotus 1-2-3
• 18:50 – Why Crandall left Morgan Stanley for Marc Rich
• 26:57 – On ‘skullduggery’ and regulatory arbitrage in early trading
• 31:12 – Marc Rich’s real talent: recruiting and leading people
• 35:32 – Necessity of teamwork and trusting relationships in physical trading
• 39:56 – Compensation as a central management concern
• 43:27 – Changes in Marc Rich & Co. ownership structure and leadership
• 47:38 – Key lieutenants and the structure that ultimately split into Glencore, Trafigura

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Flow & Tone

The conversation is rich in first-hand industry detail, with Crandall’s storytelling alternating between dry humor, historical analysis, and candid reflection. The tone is candid, occasionally self-effacing, and always insightful about both the personalities and mechanics that built the commodities trading empires.

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To Be Continued

The episode concludes at the point of company schism, teeing up part two: an in-depth exploration of the post-Rich trading house landscape, the continuing dominance of giants like Glencore and Trafigura, and the evolving future of commodities trading.

Transcript

[Mark Crandall]

Foreign.

[Paul Chapman]

Welcome to the HC Commodities Podcast, a podcast dedicated to the commodities sector and the people within it. I'm your host, Paul Chapman. This podcast is produced by HC Group, a global search firm dedicated to the commodities sector. Today we're joined by Mark Crandall. Mark is one of the founding fathers of the trading houses and the commodities sector as we know it today, starting his career at Morgan Stanley before joining Mark Rich and then as we'll hear being instrumental in the founding of Glencore and Trafigura today. In part one, we cover his early career leading up to the famous split at Mark Rich. And then in part two, next week we'll dig deeper into Mark's thoughts on trading houses, why they've come to dominate the sector and what the future might hold. As always, you can really support the show by leaving us a positive review on the platform. You're listening on. Well Mark, welcome to the show.

[Mark Crandall]

Thank you. I'm happy to be here.

[Paul Chapman]

Yeah, I'm looking forward to this. And special thanks to Colin Bryce and his book the Rivers of Money for bringing us together. So we're talking about in part your career and how fascinating career that you've had. And then secondly as well talking about the trading houses themselves which you have been instrumental in creating. One of the founding fathers, how they've succeeded to dominate the industry over the last decade and what the future might hold for them. So let's can we get a bit of an early bio on you and how you ended up working with Mark Rich and company and just start us off in the early days. How do you get in the industry?

[Mark Crandall]

Well, I came into the industry via Morgan Stanley. So I got out of college university for your British audiences in 1980 and that was before the so called Wall street refiners had really happened. And through a personal friend I got introduced to Morgan Stanley and they hired me as a young analyst in the strategic planning department. And the first project I worked on was a project to start a commodities trading operation of Morgan Stanley which they duly did in whenever it was 81 or 82, probably 82. And they hired a guy from Goldman Sachs, the commodity division of which was called J. Aaron in those days. And Goldman was along with Solomon Brothers, one of the two Wall street companies that had a significant commodities operation but it was focused on in the case of JR and gold, silver, some coffee, but not oil. So oil was a brand new thing and we started as gold and silver traders. So as it were sort of mimicking the JRN playbook. But we soon decided it was time to go into oil which was just beginning to have active futures markets. And the physical traders of oil in those days were entirely disconnected from the paper markets which were brand new and very lightly used by professionals. So that's how I started. And it was from there that I moved over four years later to work for Mark at Mark Rich.

[Paul Chapman]

Just so we all on the same page, what was it that the early Morgan Stanley commodities desk was doing? What did it mean to be a Wall street refiner, you know, and how quickly did sort of that opportunity suite get recognized by the bank?

[Mark Crandall]

Well when we, when we started out we were doing gold and silver trading very much following the London Metal Exchange and the fixing dealers in London. It was a world where people traded gold and silver in the so called physical market. But separately there was a, a futures market. So essentially the Wall street gold and silver traders were arbitraging between the traditional, what we call the upstairs market or over the counter market in gold and silver bullion. And we were arbitraging that against prices on the comex, the commodities exchange. New York Mercantile Exchange was the actual name of the exchange. Essentially when they introduced oil futures we decided to follow essentially the same idea. So you already had a 15 day rent market which existed. And we set out to see if we could reasonably arbitrage between this newly created futures market in New York which of course was trading WTI and Brent which was not exactly the same commodity. But these were the only two genuinely forward markets that really existed. There was a little bit of forward Dubai trading but it was insignificant in volume. So essentially we were trying to find a way to kind of integrate the, the forward brand market with this new Nymex WTI market which had come to existence in New York.

[Paul Chapman]

How did you understand and figure out these markets? Where was that knowledge coming from? And then secondly, just because I think it'll be edifying is kind of did this sort of quickly become evident that it was a huge opportunity. How are you guys getting paid? Like what was the, the wallet like at this time for Morgan Stanley and commodities?

[Mark Crandall]

We did realize there was an opportunity. The guy who had started the commodities department at Morgan Stanley was a really decent human being. Very, very nice guy called Robert Fduniak. I don't know what became of Bob, but he was a terrific boss. So everything there was to learn about commodities trading he basically imparted to me as his eager young charge as it were. I was the only really young guy on the desk without experience and he was unstinting in his Time to educate me that was there. The second thing was that he had the foresight to hire two people from the oil industry that came from the background that I would later become part of and you were part of. But of course, Morgan Stanley knew nothing about this world except from a corporate finance perspective. They had corporate finance relationships with the big oil companies, obviously. In fact, Morgan Stanley probably had an especially good relationship because at that moment in time, circa 1982, they were kind of the preeminent New York investment bank. But they didn't know anything about the trading with these companies. So we hired a fellow called John Shapiro, who came from Conoco, and a woman who came from Sun Trading, which was part of the old Sun Oil Company. And these two really brought this perspective on what everybody was doing and gave us some insight into the potential scale of this business. And we quickly realized that this could be really, really big. But we would need to link the external world, which was not based on wti. Obviously that was a very. At this moment in time, WTI was something US domestic refiners looked at, but nobody from the outside world would pay any attention to it. There wasn't a futures market until the NYMEX came along. It wasn't something that was exported or used abroad. So if you were a European refiner, you may have read about wti, but it certainly didn't have any impact on your daily life. And suddenly here we were with this new futures market, talking to European refiners and trying to make the case that they should consider using this new futures market as a way to hedge price exposure.

[Paul Chapman]

I guess this came out of Collins book as well, though it doesn't sound gauche to us. But it's going to be important, I guess, for the trading houses. We were about to discuss Wall street entering the commodity trading game or the energy trading game had a dramatic impact on bonus culture, on the compensation of traders. Can you just, I mean, it would just be interesting to know sort of 40 years ago, kind of how they paid you and was that taken from the rest of the bank or was it, you know, just give us some sense of that?

[Mark Crandall]

At the beginning we were treated, I think, like all the other traders in the bank. Keep in mind that trading culture had already arrived on Wall street, although Morgan Stanley was really the last of the banks to have a trading culture. So to situate this conversation would be very different today. But in 1982, if you walked into Goldman Sachs, the heart and soul of the organization was the equity trading operation, right? If you went into Solomon Brothers, which acquired Philip Brothers Phibro during this time period, during the same epic. They also had a really rich trading culture at Solly. Morgan Stanley was uniquely gentile and what we used to call white shoe. Very sophisticated. And Morgan Stanley mostly did corporate finance transactions. It was not a trading house. So bringing this new commodities operation into Morgan Stanley was at the same time that they were under the same boss bringing in an operation to trade foreign exchange. This was really a new thing for Morgan Stanley. And I think there was a certain amount of culture shock that you had businesses that were just about trading and had no relationship to the existing client base and the existing merchant banking operations.

[Paul Chapman]

You know, the narrative has always been there about look, this is a commodity trading desk, allows us to price risk for our customer base and these things. You know, there should be this sort of nirvana like state of interaction between the financing groups and the trading groups and flow and all this good stuff. Did Morgan Stanley care that you guys were offering a service to their clients? Was it seen as that at all or. There wasn't really much connection.

[Mark Crandall]

Listen, the senior management of the firm really interacted with this and made an effort to get. We were doing. We participated with the equity research guys to give her insights into the commodity markets. And certainly senior management knew who we were. So they were making a good effort to do this. But it took a while for Morgan to change into a real trading place. Another good example, which you may be more familiar with because they made an excellent play about it, which was Lehman Brothers. Lehman was also a merchant banking operation that gradually changed during the same period into a very trading oriented place. Trading really began to dominate the corporate finance business rather than the other way around.

[Paul Chapman]

The story, I guess starts in some ways. You get this early start and as often happens in this sector, right? People sort of lucky chance or a family connection gets you within it and you're in right at the ground floor. And spend four years at Morgan Stanley being part of building this, this new sector really. And then Mark Rich comes a knocking. Tell us about how that happened and why you decided to join.

[Mark Crandall]

I'm afraid I wish I could tell you that I was such a stellar performer that the people of Mark Rich heard about me and reached out. But it was actually much more mundane. Mark Rich and indeed Fibro, the other very large physical commodities trader in those days it was independent were really different from Wall Street. I mean they had little if anything to do with this kind of, let's say price arbitrage. It was a very, very different business. Very physically oriented and along about this time I found a woman who I eventually married, but who probably at this moment was my fiance. And her brother worked at Mark Rich and I spent enough time with him that he realized that the sort of oil business that I was doing at Morgan Stanley was completely different from anything that they were doing at Mark Rich. And he persuaded Mark to give me a shot to come in and I don't know, impart this new perspective to the operation that already existed at Mark Rich.

[Paul Chapman]

And by that you mean. So essentially you had that financial hedging financial markets knowledge to come in and actually append that and into their physical trading activities.

[Mark Crandall]

Absolutely. And this was especially true with oil, I have to say some of the financial concepts which are completely routine now to the point that I think kids probably know them. But things like contango and backwardation, it's difficult to grasp. But in that era they didn't exist in the oil markets because to have contanguan backwardation you have to have a forward market. And there really wasn't one. There was the 15 day Brent market. So you could see inter month price differentials in 15 day Brent, but it only went out two or three months, nobody was trading one year forward rent in 1982, it was all alchemical, right?

[Paul Chapman]

I mean like I think options had just been invented by Black Scholes, you know. Sorry, the option pricing.

[Mark Crandall]

Absolutely. No, no, very much so. In my second year at Morgan Stanley we built, using Lotus 1, 2, 3, if you can even remember back that far, the predecessor to Excel, which obviously came to dominate the spreadsheet space. But in the day, whenever that was 8182, Lotus 123 was the Excel equivalent to go to. And we took the original Black Scholes paper and copied the formulas more or less longhand into 1, 2, 3 and built a really primitive options pricing model. And then we went out, this is for gold and silver. We went out and started asking the existing options traders for quotes and, and discovered that the way they were quoting wasn't based on black shoals, it was just based on their own intuition of what seemed like the right price. So we'd ask a guy for four or five different quotes and they'd be spread all over the place and they wouldn't have internal consistently consistency at least consistent with Black Scholes. So yeah, this was all completely new. But metals traders did have a forward market. So if you went to a place like J. Aaron or any of the Aaron was on Wall street, but they had originally been an independent physical trader just Like Mark Rich and the other physical traders, the metals people in those organizations knew about contango and backwardation. There was nothing new for them because that was a big part of how people traded physical metals was trying to take advantage of contango and backwardation. But for the oil people it was all completely new. There was a whole dimension of trading that gradually opened up in the second half of the 80s and of course became gigantic as it is today.

[Paul Chapman]

So what made you join Mark Rich and what was he like?

[Mark Crandall]

I wanted to join Mark Rich. I mean maybe I was a bit headstrong. With the benefit of hindsight, I'm still glad I did it. But it was a bit impetuous because we were building what became the largest of the Wall street refinery activities. Morgan really became incredibly successful in that business. It just made an absolute fortune. This is after my time, after I had already left obviously. But the same people, Nancy Crop and John Shapiro who had started it, John led it for many years with the able help of Simon Greenshield who later went to Phibro and a variety of other people. But they became really a seriously dominant presence. All right, but not in that era. In that era we were doing low level arbitrage between Brent and wti, doing a little bit of speculation. We started trading options on WTI and options on 15 day Brent, but everything was about price. So the exciting world of real oil, where people produce oil in far flung countries that were significantly more exotic than the suburbs of New York City, I thought, geez, that looks way more interesting than trading the price of 15 day Brent. After all, there's humans involved, there's oil ministers, there's government policy, there's security concerns, there's many more dimensions. All the things that have always lured people into the oil market. It's a really interesting thing. So I decided professional success at Morgan, even though it was well remunerated and I had a, you know, relatively senior position working with John and Nancy running this thing. I was, you know, eager to learn something new. So I thought what better place to learn it than going to work for Mark?

[Paul Chapman]

Just out of interest, had they realized that there was this burgeoning financial trading opportunity suite or was it sort of happenstance that, you know, your future brother in law introduced you to it?

[Mark Crandall]

I think they knew it was out there, but they didn't really understand it. And to be honest, either did we. We didn't understand quite how profound that change would turn out to be. The market became much bigger. If you'd asked me in 1985, or 1986, how big this was going to become, I would have been off by an order of magnitude. I think it was obvious that there was something there, but it seemed like a little bit of a sideshow. The energy and resources sector is experiencing unprecedented change. To help navigate this change and capture.

[Paul Chapman]

Its opportunities, HC Group launched Enco Insights, a global advisory network dedicated to the sector, providing senior advisors and subject matter.

[Mark Crandall]

Experts to investment and infrastructure funds, law firms and corporates. Encoinsights leverages HC Group's 20 years of connections in energy and commodities to give clients the expertise they need when the.

[Paul Chapman]

Stakes are high and insight matters. Learn [e-mail] It'd be great to talk about Mark Rich himself, what he was like. But also, Mark Rich is sort of the trading house that, you know, someone in the early stage of their career in commodities might not know about. Right. But was sort of the, the progenitor, the founder. And many of the traits originally in that trading house are what, what are built on to become Glencore and Trafigura and Mercuri and the others and so forth that had this phenomenal success.

[Mark Crandall]

Very much so. I mean, the, the story which is possibly apocryphal is that Mark left Pho because he disagreed with the, the titanic figure who, who was behind the fever of the 1970s, which was Ludwig Jesselson. I never met Jesselson, but I'm sure he was a very interesting guy. But he and Mark broke because Mark saw the possibility of trading oil in the same way that other commodities are being traded. Keep in mind that when we started Morgan Stanley's oil department, which I think was either 82 or 83, I'm going to say 83, that seems more likely. And we hired this guy, John Shapiro from Conoco. John told us about oil that was produced in Syria, for example, which only 10 years earlier was trading for 50 cents a barrel or a dollar a barrel. When they would have the quarterly price negotiations, they were talking about 5 and 10 cent arguments over the price. The price of transportation was far higher than the price of the oil. And all this changed, of course, dramatically through the two oil price shocks or oil embargoes or whatever word you want to use in 73 and 79, the 1973 oil price shock shook all of that stuff out of the ancient world and into a world where the price was higher. And then in 79, with the Iranian Revolution, there was round two and you had suddenly really, really expensive oil prices. But this was a brand new thing. This was a $1 a barrel commodity at the turn of that decade. And by the end of that decade it was. I don't even know how expensive it was in 1979. I was a kid in high school, but it was compared to 1970, 40 or 50 times higher.

[Paul Chapman]

And if you owned the capacity, the logistics or the contacts and the capacity to get that oil from those doing hard things in hard places.

[Mark Crandall]

Right.

[Paul Chapman]

That was sort of the, you know, solving problems in time, you know, location and form could be suddenly became incredibly lucrative.

[Mark Crandall]

Absolutely. There were tremendous dislocations which were normal. For example, in the mid-70s, pretty much any government that sold oil had an official selling price. Because if you lived in a world where the price moved by 5 cents a quarter or 15 cents a quarter, it was an administered market. So, you know, the government of Nigeria would have an official selling price and that's the price at which they sold oil. And suddenly you have these oil price shocks and the price of oil could be $10 a barrel more expensive than the official selling price. Well, obviously when that sort of situation occurs, there becomes an instant, let's say, shortage of oil at the official selling price and a huge benefit to anybody who can get a contract at the official selling price. So this obviously gave rise to a lot of skullduggery and influence peddling and all the rest of it, because there were suddenly fortunes to be made if you could just buy oil at the price the government thought they were supposed to be selling it at because the price in the real world was dramatically different. And honestly, I would say a good portion of the governments hadn't really kind of processed all that information by then. So there was probably considerable confusion. Some governments, I think, had processed it all and got what was going on, but exploited the opportunity to reward their political friends with oil contracts and all the rest of it.

[Paul Chapman]

Be good to get a sense of how Marx struck you in those days and Pinkus Green and so forth. And then I guess I understand there's a mixed legacy here in some ways. Right. But when you look back and reflect on it, this was the early stages of creating a market for oil that ultimately has led to what we see today. Right. Which is sort of ultimately solving for lower prices and all the rest of it. Or was it there were dollars left on the ground and there were huge arbitrage opportunities and you just had to be swift and be able to get them. Or was it sort of. Actually the underlying competitive advantage was skullduggery.

[Mark Crandall]

This gets down to, I guess you want to characterize Skullduggery. There were. There were things that the major trading houses did that were, for example, against the law in the United States, but not against the law anyplace else, and may not even have been a bad thing to have done, but they did them anyway. So you had, for example, if you look circa 1980, one thing you had a lot of was trying to purchase oil that under the rules of the United States for tax purposes. This is something that I think Nixon first introduced, but it got later elaborated and became really significant at the end of the decade when the price of oil got higher. There was a differentiation between old oil and new oil. And the theory was, we're not going to let guys who were making oil before the price went up make a windfall profit from the fact that the price is now 10 times higher than it was before. We would like that price signal to be delivered to somebody who might otherwise not drill a new well, but would drill a new well knowing that he or she could take advantage of the higher price. So the concept was to have two parallel markets with two different prices for oil. And you can imagine how that ended. It ended with elaborate chains or transactions that miraculously turned old oil into new oil, of which all of the trading companies were accused. There was also at the same time, obviously, the Iranian hostage situation, which led to sanctions on Iran, at least from the United States. And therefore trading companies which continue to do business for the Iran were technically breaking US Law, even if they were sitting in Switzerland and had no contact in the U.S. and you may remember that Rudolph Giuliani, who later became famous as Trump's attorney, before that was mayor of New York in this period that we're talking about, which is the Attorney.

[Paul Chapman]

General of the Southern District, right?

[Mark Crandall]

Correct. He was Attorney General of the Southern District. And he made it his particular mission to go after Mark Rich, the man. So sitting at Morgan Stanley, before I took this job at Mark Rich, I was very aware of all of the stories about Mark, because Giuliani rather flamboyantly once stopped the 747 about to take off for London, claiming that Mark Rich was smuggling papers from the New York office to Europe. It was all contrived. The sending of the papers had been pre approved by his office, but he got the TV cameras there and he made a real palaver out of it. And so that was in the news. And then I actually met the guy and I really liked the guy. And I continued to like the guy for the entire time I worked for him. He was very measured. He was about the same age as my dad. They were the same generation. I think he was fundamentally very shy, but he was a great judge of people. You know, people at the time would frequently attribute super union superhuman characteristics to him at calling the markets and making money. But that to me was never his great strength. He was an okay trader. He was, you know, you can't survive in that business if you're not. But that wasn't his signal characteristic. His distinguishing characteristic was he was a great recruiter of people and leader of people. The people who worked for him were intensely loyal to Mark and vice versa. He was really good at managing that process. When I later, in a later upheaval at. Mark Rich became the head of the oil department, which happened in 1992, Mark and I went back and forth on whether or not I was ready to do that job because I was still a relatively young guy. I was 34 at the time. Time. And Mark had his doubts and I sort of pushed the door open, as it were, to the corner office. And that was clearly part of Mark's calculation. With the benefit of hindsight, he was clearly setting tests to evaluate the character of the guy that might become the new head of his oil department.

[Paul Chapman]

I find it fascinating, right, because that to me seems this kind of like the very heart of the story we're telling. And you're studying, you're sharing and maybe some lessons today where actually we've been, you know, oftentimes it's the best trader that can get promoted. But today that best trader might be sort of a savant when it comes to numbers and patterns and stuff, as opposed to historically, which was really about can you, can you build a team and can you build relationships and judge people as well?

[Mark Crandall]

Right.

[Paul Chapman]

That sort of intuition about how people are going to respond in any given moment, but also how they might fare in challenges and so on. And that seems to me to be at the core of that Mark Rich diaspora, that leadership team that then went on to do transformational things. Claude and Ivan and these, these names that dominate the sector for the next 20 years. Can you just talk a little bit about the leadership team that he developed? And it seems to me that what Mark Rich imparted to you and to them was it was always about people both developing them, training them, unlocking them, but also about relationships. It wasn't about the sharp edge trading stuff.

[Mark Crandall]

You know what it was? It's the same reason I was tempted to leave Morgan Stanley was not primarily about price. Price, at the end of the day, is what you're trading, after all, you got to buy low and sell high. You know, there's, that's what trading is about. If you're going to make a profit, you got to buy it for less than you sell it for. So price obviously was an aspect of what we did. But just compare and contrast the two approaches. A guy who is a purely price trader could pick up the phone and call the New York Mercantile Exchange and buy WTI in the morning and if he was right on the direction, sell it in the evening or sell it two weeks later and record a profiting. And legitimately, in a way, I don't want to say legitimately because I think it's more complicated compensation and how compensation should work. But in his mind at least legitimately go into his boss's office and say, I did this with no help from you. This is sui generis. I predicted that the price of oil would go up and I bought it and I sold it. And I don't need to be surrounded by your roof and your walls to have done that, except to the extent that you finance my margin. So I want a percentage of what I make. And if you look at how compensation developed in the Wall street trading houses, it tended to have a very results individual result oriented focus. A lot of the banks, when they were recruiting people would offer them 10% of what you make or 12.5% of what you make or whatever the number was with this kind of model that the economic actors were isolated and trading their own book and making their own money. Right. Compare and contrast that with how you would need to make money in a physical trading environment like Mark Rich. Well, first of all, maybe you were trying to buy a cargo in Nigeria at OSP plus something, some premium that you were paying to an intermediary. Well, first of all, the intermediary had to be willing to negotiate with you and not, for example, with good people over at Vitol or the people someplace else. So you needed a personal relationship there. Right in the first instance. Secondly, the oil minister probably had to bless the transaction so that the intermediary knew that if he sold to you, he wouldn't get in trouble and get blacklisted and not have the opportunity to do it again. So he wanted not only to have a decent relationship with you, but also to know that you had a working relationship with the minister. And then if you were going to get that cargo out of there, you needed to get a ship under it. So you needed a relationship with the people who owned the vessels who would trust you to lift this thing. Even if it wasn't in the Nigerian program, they couldn't verify the cargo existed. But you knew it was there and it was there and the vessel owner would take your word for it because you had a trust relationship. Suddenly you're talking about three or four or five people that need to be involved to execute that trade to get the low price cargo. You can't just pick up the phone and buy it.

[Paul Chapman]

And things that happened two years prior to your arrival. Right. I mean there's foundation building blocks way back in the day before you got to the point of making that call.

[Mark Crandall]

Absolutely, absolutely correct. Takes a very long time. And that's part of the reason. There's many reasons why the biggest trading houses, meaning the places like Traff, are so dominant. But one of them is this is a very difficult business to enter. They're, you know the old business school stuff about having moats around your castle. Economic moats. There are a lot of economic moats here. It is not a trivial thing setting up a physical trading hub. Hello, I'm David Hunt, founder and managing.

[Paul Chapman]

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[Paul Chapman]

And those moats have gotten deeper and wider. Right. With the advent of, you know, the scale scaling having its own quality. But the. That's why we haven't really seen, we've seen consolidation and we haven't seen many come along. We're going to tell that story in part two and I think it's fascinating. You talk about conversation, we'll talk about that as well. But I think it's where actually that percentage model never went into those top trading houses. Right. Because they recognize it took a team. Yes. There was bonus pools generated and those would be split up and it's been very lucrative. And it seems to me where you've had some challenges when you've had that Wall street percentage of book or the hedge fund percentage of book blend into that physical world.

[Mark Crandall]

This is absolutely correct. But I can tell you when, when I was working before I took over the reins at Mark Rich, I worked very closely with Claude Dauphin, who was the, my predecessor in that job. And we discussed this topic ad nauseam. I mean you have no idea how important getting compensation. Right. Is and was in a trading company. It is one of the all important things.

[Paul Chapman]

Yeah, well, the quantum. The quantum has to be.

[Mark Crandall]

Well, the quantum got bigger. You're absolutely right because the amount of money that, that the companies make got a lot bigger. So that's. And that was after I left the business. So that's. I never really lived through that massive scale up. But the comment I was going to make was that if you go back for example to 1992, all right, which is immediately before Claude left Mark Rich, I distinctly remember having conversations with him and with the other traders where we discussed this very topic and said, okay, you can go over to Merrill lynch and you can earn 10% on your handiwork if you could identify what your handiwork is. What are we doing here where we've got a bonus pool, a collective bonus pool that if I Remember right in 1972 and don't call me a liar because I won't be able to check the number anyway. I remember was 17.5% and that was for cash bonuses at the end of the year, but didn't. Did not include the share ownership that people also had in the underlying firm. So the collective was earning a good deal more than the banks were paying. But it was very difficult to attribute a dollar to any particular individual. And this was considered the bailiwick, the talent of the management. And the management's job was to make sure that they took that pot which they did in fact allocate to pay. So no one was trying to save money by not paying people. But then they had to turn around and spread it around the trading floor in a way that reflected everybody's contribution which didn't usually come with a number attached to it. So there was considerable nuance involved.

[Paul Chapman]

I myself actually met Claude, whatever it was, 15 years ago, a couple of times talking about exactly this compensation. And today, you know, a significant slice of HC Group's revenue comes from activities come from around advising on all structure and compensation. So because it is so critical. But I do think that how. And we're going to tell this story like that. One of the edges of the trading houses has always been that ability for management to reward and actually is the teams to the Quantums are great. But as you say, it's the teams coming together and working out that year how people contributed because it takes a team to deliver on that act. The, the opportunity set that you just outlined to wrap this piece of the story up. So who was at Mark Richard's leadership? And how did Trafigura get started in your involvement in that? And then talk about Glencore.

[Mark Crandall]

As you can imagine, it was a long and winding road, as the song goes. But if you go back to the beginnings of time, which in this instance is before my professional career, but it's the mid to late 70s, I believe that Mark Rich and company was set up in either 73 or 74. I could be wrong about that, but that's my recollection, I'm pretty sure.

[Paul Chapman]

Sony, yeah. Out of February, right? I guess Mark out of Febro.

[Mark Crandall]

Yeah. He and just Wilson had their famous fight, whatever that was about. Allegedly about Mark wanting to take a big storage position for a flat price trade because he thought the price of oil would go up, which these days, no one would use an oil tank to put oil in on an unhedged basis. That would have been inconceivable because if you wanted to just be long oil, you'd buy a forward contract. You would put it in a tank. If you put it in a tank today, you're inherently doing some operation that has to do with capturing contango or predicting backwardation. But that was not the case in 73. So apparently he wanted to go long and his idea was to buy some physical oil and fill up tankage and wait till the price went up, which, had that happened, would have made a lot of money. I don't know whether it ever happened or not, but it led to allegedly his departure from Vibro and setting up this new company. And they had a number of people who suddenly got rich. So they were very successful. And especially the 79 oil shock gave this relatively new company the opportunity to become very, very profitable. So the people who were Mark's partners, and he was never the dominant partner, it was called Mark Rich and company, but he didn't own 50% of it or anything like that. He had a wide variety of partners, including several who were particularly close to him. By the time I arrived on the scene, which is I joined the firm in 86, I knew people in the firm because of my fiance, probably three years before that. By that time period, most of Mark's original partners had left. They'd retired, they had enough money and they were either old enough to retire partly because of age, or just rich enough that they can retire early. And Mark was at that point fighting with Giuliani. He was a fugitive, technically, so he was living in Switzerland, but he was able to go to Switzerland and Israel but really no place else. So he had a pretty constrained life. And he only had from his original partner group two of the larger partners who were still very much with him, Alec Hackle and Pinkus Green. Pinky they called him. So Mark's broad breadth of original partners had mostly gone and he had elevated gradually a younger group of guys actually to run the company. Mark and Pinky and Alex were the elder statesmen and we're still very much involved but they weren't running the day to day business. And the people running the day to day business were. Billy Stratharter who ran metals, who later became, yeah, he became the first chair, maybe even CEO of Glencore. I've forgotten what, what he called himself when they set up Danny Dreyfus who was running Richco Grain, Manny Weiss who was running the aluminum operation and Claude Delphin who was running oil. So those, those four guys were more or less, you know, they weren't called this, no one had titles, but they were the senior vice president of metals except aluminum, aluminum grain and associated soft commodities just on that.

[Paul Chapman]

So Danny, he's just part of the Dreyfus family that obviously had a long standing grains trading history or was he? No connection in just.

[Mark Crandall]

I'm not aware of whether Danny was part of that Dreyfus family or not. I, you know, I never, it seems kind of amazing now with the benefit of hindsight, but I never actually asked that question. I don't know whether he was related to the dresses or not. It's certainly possible because he was the person running what was then called Richco Grain and the sugar operation which wasn't very big, but it existed. And softs were different because softs didn't have the same forward markets and of course they're perishable commodities. So that's. Softs are a really different kettle of fish, as it were. Anyway, those were the four guys. And gradually what was happening was that it became clear that Pinky and Alex were essentially retiring on some kind of a slow schedule, but they were pulling back from the business. So it became pretty clear to Mark and everybody else that his future bed was being made in a world that was going to be Mark Isolata by himself with these four guys. And there was sometimes some tension about how was this all going to fit together. Was he just going to walk away and give the company to these guys or was he going to try and stick around but in a non executive capacity or was he going to try and stick around in an executive capacity and boss these guys around? But of course, this is becoming less and less tenable in the same way that a trading company is all about teams. Mark no longer, you know, was directly having an impact on people doing stuff. He had these four guys running all the significant parts of the business and they had expectations of seeing their shareholding in the company increase. So as Mark's partners left, what happened was that Mark, the company bought back their shares. So essentially they retired the shares. So the inexorable movement here was that Mark was becoming a more and more and more significant shareholder of the company. He may even have bought back some of the shares from these people directly in his own name because there was always employee ownership of Mark Rich. That was significant. But I know as the various partners retired, Mark's concentration of ownership was increasing, which implies perhaps some of these shares he actually bought back personally. But the point is, we suddenly arrived at a moment, you know, as the decade turned. It was 91 or 92, when mostly pinky and Alex were gone. Not completely. They were still there. Once in a while I would see them, but they weren't active. And Mark was kind of the only guy at the. At the top of the pyramid. And he owned a really large percentage of the company. And he was feeling obviously, a little bit threatened by these four powerful guys who actually controlled the several hundred million a year that the company was making, generated it and directed it. And there were. It was definitely a source of discussion and tension which led, inter alia, to Mark hiring his personal lawyer, Bob Tomagen, who moved over from New York and became a kind of, some would call him a praetorian guard. Maybe that's unkind, but he was a little bit of a buffer between Mark and the rest of the world. And clearly there were discussions about the future ownership of the company and what Mark's role was going to be going forward, which culminated Willy Stradder leaving the company in 1992.

[Paul Chapman]

Okay, well, let's park that story there at a cliffhanger and we'll come back in part two and carry it on and then talk about the trading houses over the last decade and today.

[Mark Crandall]

Super.

[Paul Chapman]

Thank you for listening. To find out more about HC Group, our global offices, and our expertise in search within the commodities sector, please visit www.hcgroup.com.