New Managers June 2012

Focus - Ex-prop traders meet the challenges and opportunities of the hedge fund world.

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Ex-prop traders meet the challenges and opportunities of the hedge fund world

New entrants in the hedge fund world are no longer new, says Mark Israel, director at consultancy firm Sapient Global Markets (1). There are, for example, financial professionals who work at hedge fund firms and realise they can do it themselves, so they start out on their own.

Then there are hedge fund firms who find themselves underwater; those return the money to their clients and start anew. There are hedge fund firms who become too big and decide to sub-divide, giving birth to small hedge fund shops. There are other firms where a partner starts a different strategy under a different brand with a new independent status, while still sharing the same office space.

Then you have people leaving investment banking and entering the hedge fund arena, either by joining an existing firm or by setting up their own fund. Some industry experts share their observations on these ex-bankers with Opalesque.

In the U.S. most of those leaving investment banking and moving to the asset management industry are doing so because of the Volcker Rule. The Volcker rule, which is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, prohibits depository banks from proprietary trading; this rule is similar to some provisions in the Glass-Steagall Act (1933-99) and came as a reaction to the 2008 financial crisis. The terms of the Volcker Rule will become effective on July 21, 2012 - and banks will have two years to comply. However, the date may be delayed as the five regulatory agencies drafting the Rule may not have submitted the completed version by then. Another problem is that lawyers cannot agree on whether banks should continue trading their own accounts during the next two years or not.

Proprietary trading has been one of the most profitable activities for banks. Ac......................

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This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.