The Man They Call Cactus Bets Bond Salesmen Are No Longer Needed

(Bloomberg) -- Before Cactus Raazi became a star salesman at Goldman Sachs, before he pioneered electronic bond-pricing -- even before he started calling himself Cactus -- he’d purposely send his burnt-orange 1979 Toyota Corolla skidding through the rain-soaked Santa Monica High School parking lot.

“We came around the bend and what came into sight was our science teacher’s vintage car,” said Jason Bentley, a classmate who rode shotgun. “Thank God we didn’t hit it. We came so close.”

Twenty-five years later, Raazi is still careening, only now it’s called disruption. Through the firm he started in 2016, Elefant Inc., Raazi is trying to reshape how corporate debt trades. Elefant, which bills itself as a digital broker-dealer, uses software rather than traders to determine prices.

“At Elefant, we’ve replaced traders with algorithms and replaced salespeople with APIs,” said Raazi, referring to the code that allows computers to interact with servers. “Software-based pricing is here.”

Elefant has made more than 50,000 such trades -- and raised $15 million in equity capital, with access to an additional $250 million to fund its balance sheet. But the bond market resists change. Trading in stocks, currencies and futures has been screen-based for years, with transaction times measured in milliseconds. Big bond trades, however, are still made over the phone or by instant message.

Raazi isn’t the only one trying to transform this market, and plenty have failed in the past. But now, advances in machine learning are making it easier to sift huge amounts of information so Elefant’s algorithms can determine prices.

The changing environment is part of a broader trend that’s threatening the dominance of Wall Street banks in the corporate-bond market as more investors skip intermediaries and trade among themselves. And it’s bringing long-awaited changes like standardized pricing, automated trading and billion-dollar portfolio deals with it.

Kevin McPartland, head of market structure and technology research at Greenwich Associates, remembered being impressed with Raazi’s idea a few years ago but wondering if the time was right.

Now, however, “the market is ready,” McPartland said. Thirty percent of all bond trades are electronic, an all-time high, according to McPartland’s research. Pricing electronically is what’s new, he said.

“This is Cactus taking it to the next level, where there are immediately executable prices,” McPartland said.

Bloomberg LP, the parent of Bloomberg News, has a bond-trading platform of its own.

Iran to California

Tall and thin with a stubbly, salt-and-pepper beard, Raazi, born with the first name Mehra, wears his hair in a ponytail. He started calling himself Cactus in college, and later made it his legal middle name.

He was four years old when he arrived in Santa Monica from Iran in 1974. His mother found work as a hairstylist in Beverly Hills. His father had been an official in the tourism ministry in Iran. In the U.S., he became an electronics repairman. (“I had a reputation for being very nice to the copy repairman at Goldman,” Raazi said.)

Raazi discovered he had a knack for sales when he got a job hawking skis when he was 15. Bentley, his longtime friend, chalks up Raazi’s ability to needing to fit into a community that was far from welcoming to a Persian transplant.

“Santa Monica High School was a very white, very homogeneous world,” said Bentley, who went on to local fame as host of the KCRW radio show “Morning Becomes Eclectic.” “He used his personality as a strength to make friends.”

While at the University of California at Santa Barbara, Raazi became a young father. He needed to work, so he sold ads for Urb, a hip-hop magazine, and was a doorman at Pink’s nightclub in Santa Monica. Then he developed an interest in finance.

Through a friend, he met Scott Lawin, who worked at Goldman Sachs Group Inc. Raazi moved to New York in 1998 to share an apartment with him. Lawin remembered working each night until 1 or 2 a.m. and returning home to find Raazi waiting up to ask him questions.

“Coming from the trading floor and seeing someone who was a natural salesperson, very bright and hungrier than anyone else -- in my experience, those are the people who succeed on Wall Street,” Lawin said.

Lawin went on to create Parametric LP, a private investment firm that backed Elefant.

After more than 30 interviews, Raazi was hired by Goldman for its medium-term notes desk in 1998. During his first year, Raazi also worked as a doorman at night spot Torch on the Lower East Side. He had child support to pay and traveled to California twice a month to see his son.

“It was a tough existence,” he said.

By 2007, Raazi was selling products called credit-default swaps to hedge funds. A client asked him how to create a short position on the mortgage market, Raazi said.

‘Recognize Cactus’

The ensuing experience landed Raazi a mention at a post-crisis congressional hearing. The subject line for a March 14, 2007, email from Tom Montag, Goldman’s trading boss at the time, to then-Chief Executive Officer Lloyd Blankfein, read “Cactus Delivers,” and described how Raazi “covered another 1.2 billion in shorts in mortgages.”

“Please recognize Cactus when you get a chance,” another Goldman executive said in the email thread, according to a submission to Senate investigators.

Raazi said that every email he sent during that time has been examined and nothing out of order was found, he said.

“I’m proud of that,” he said.

After failing to be named partner in 2010, Raazi left Goldman. A trip to a Thai elephant sanctuary that year eventually inspired the name of his new firm.

“I was just deeply affected by spending time with them,” he said.

Banks are now approaching Elefant, where coders outnumber traders four to one, to inquire about using its prices, he said. Far from skidding his old Toyota in the rare Southern California rain, Raazi sees a clear path where Wall Street and investors will buy the software-derived prices he’s offering.

“Asset managers want to see this type of transaction,” he said. “They ask for it every time I visit them.”

To contact the reporter on this story: Matthew Leising in Los Angeles at mleising@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Bob Ivry, Daniel Taub

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