Sun, Feb 19, 2017
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. With $54bn in assets, Philippines is ready for hedge funds, alternative investment products[more]

    Komfie Manalo, Opalesque Asia: With the country's outstanding fund management industry at $54bn and growing, the Philippine market and its investors are ready to invest in "more sophisticated" asset management products, like hedge funds and alternative investments, said Deanno J. Basas, presi

  2. SoftBank to buy Fortress Investment for $3.3bn[more]

    From Reuters.com: Japan's SoftBank Group Corp on Wednesday said it has agreed to buy Fortress Investment Group LLC for about $3.3 billion, looking to add investment expertise as it prepares to launch the world's largest private equity fund. The all-cash deal is SoftBank's first major investmen

  3. ...And Finally - Truth in advertising[more]

    From Newsoftheweird.com: Girl Scout Charlotte McCourt, 11, of South Orange, New Jersey, saw her sales zoom recently when she posted "brutally honest" reviews of the Scouts' cookies she was selling -- giving none of them a "10" and labeling some with dour descriptions. She was hoping to sell

  4. Europe - Brexit - Updated legal guide, Euro exchange rates set to tumble as hedge fund's super computer predicts Marine Le Pen will be next French president, Swiss fund market hits all-time high[more]

    Brexit - Updated legal guide From Herbertsmithfreehills.com: When we began analysing in depth the possibility of Britain exiting the EU (Brexit), 18 months prior to the June 2016 referendum, the business consensus was very much that Brexit was a remote prospect that either would never hap

  5. People - Gramercy appoints Bradshaw McKee as managing director of Capital Solutions, Trump taps Cerberus's Feinberg to lead intelligence review[more]

    Gramercy appoints Bradshaw McKee as managing director of Capital Solutions Gramercy Funds Management LLC, a $5.8 billion dedicated emerging markets investment manager, today announced the appointment of Bradshaw McKee to the position of Managing Director, Capital Solutions and Distressed