Thu, Jun 30, 2016
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Flow of prop traders to hedge funds expected to continue

Thursday, February 03, 2011
Opalesque Industry Update - Proprietary trading desks at large banks have always been a source of talent for hedge funds. Many successful hedge fund managers had been proprietary traders – Dan Och of Och-Ziff, Eddie Lambert of ESL Investments, Eric Mindich of Eton Park Capital Management and Dinakar Singh of TPG-Axon Capital to name a few. In fact, prop traders account for most of the largest-ever hedge fund launches.

“The exodus from prop desks to hedge funds has gone on for over the past ten years. Throughout the years, however, different motivations have pushed prop traders to hedge funds. For example, in 2008 and 2009, a number of investment banks pared proprietary trading following losses during the financial crisis. Prop traders left for hedge funds in 2009 in an effort to escape increased oversight of compensation and trading constraints,” comments Lois Peltz, president of Infovest21, and author of its just-released special research report on the topic.

Since 2010, prop traders have been squeezed out of large investment banks due to the Volcker rule provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act. First announced in January 2010, President Obama signed the Act into law in July 2010.

While a number of prop traders have already joined hedge funds or are in the process of starting their own, more spin outs are expected.

Some say the best traders have already been picked off. “The most marketable go first. Goldman’s Principal Strategies Group is done – they are all done. Goldman took them off the payroll on December 31, 2011. They are no longer employees unless they transferred into another role in Goldman. Many were offered other roles,” says a former Goldman employee.

But as others point out, there are more proprietary traders than at Goldman Sachs. “If regulation continues on the trend it has been, it is inevitable that more prop traders will emerge from banks in 2011. Some investment banks have been quick off the mark, others have not. Most are waiting to see specific rules elaborated by regulators and then they’ll make their decision,” says the head of a seeding operation.

An equity analyst observes that where the law is clear, the investment banks are adhering i.e. closing down the units or spinning them off. However, where ambiguity exists, they’re holding off in that regulators may take a broader approach.

“Many talented prop traders are still left. Not all banks have closed their prop desks – it may take a number of years for some banks to be in compliance,” says a principal at a multi-strategy platform.

Bank of America’s proprietary fixed income desk is one of the large remaining prop desks that hasn’t yet announced plans to spin off or close. Bank of America got the desk when it bought Merrill Lynch.

Source

kb

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Blackstone buys minority stake in New York-based credit hedge fund Marathon[more]

    Benedicte Gravrand, Opalesque Geneva: Blackstone Strategic Capital Holdings Fund, a vehicle managed by Blackstone Alternative Asset Management (BAAM), has acquired a passive, minority interest in Marathon Asset Management, for an undisclosed sum. Based in New York,

  2. Investing - Soros, Druckenmiller among hedgies profiting in market plunge, Hedge funds were most bullish on bonds since 2004 before Brexit, Surprise Brexit vote unleashes scramble for dollars, High-yield hit on Brexit but no panic selling, Scientist turned hedge fund founder lured to pound, euro, Hedge fund avoids commodities, posts big gains[more]

    Soros, Druckenmiller among hedgies profiting in market plunge From HITC.com: Bullish positions in gold and volatility and well-timed short bets on China and emerging markets, among other areas, were some of the trades that benefited hedge funds on Friday as markets digested Britons' s

  3. Manager Profile - A 26-year old hedge fund manager called Brexit — here's what he thinks about the historic vote[more]

    From Businessinsider.com: Taylor Mann is not your typical fund manager. The twenty-six year old Texas A&M graduate manages Pine Capital in Larue, Texas (population 160), where he resides with his three-year old daughter. Also atypical compared with many of the largest funds out there, Mann makes

  4. People - Mariner Investment’s co-CIO Williams to leave $5.5bn firm, IOOF hires new alternatives portfolio manager[more]

    Mariner Investment’s co-CIO Williams to leave $5.5bn firm From Bloomberg.com: Basil Williams, co-chief investment officer of Mariner Investment Group, is leaving the $5.5 billion hedge-fund firm after negotiations to renew his contract failed. Williams will stay in his role until t

  5. Hedge Fund Due Diligence Exchange offers complete due diligence reports at $1500[more]

    Matthias Knab, Opalesque: HFDDX is offering complete alternative investment due diligence reports at $1500 US. Industry professionals can simply go to www.hfddx.com and indicate their interest in sponsoring one or more DD Reports for $1500 each.