If you’re a top trader at an investment bank, the dream used to be that you could quit the stolid institution of a bulge bracket and go it alone bringing in the real big bucks within your own hedge fund.
That dream, it seems, is now fading fast. Not only have small hedge funds launched by former star traders in investment banks floundered in the past 12 months – think Benros Capital and Edoma Partners, both started by former Goldman Sachs prop traders and both of which folded – but the only alternative option for former bankers seems to be the larger funds.
As Financial News points out today, many former prop traders who were intending to start their own hedge funds have instead been happily hoovered up by larger industry players:
Robert Leonard, global head of capital services at Credit Suisse, said: “We are seeing more potential launches consider platforms rather than independent launches.”
Alex Allen, senior portfolio manager at fund-of-funds firm Sciens Capital, said: “It has been a very difficult asset-raising environment since 2009 and the impression is that you’re more likely to survive as a fund if you’re sitting in a large organisation where you can use their infrastructure.”
There’s another factor at play though – former prop traders are being recruited by hedge funds where it’s notoriously difficult to survive.
Millennium Management, for instance, has a reputation for being a sink or swim hedge fund, where even a small period of underperformance can result in traders being shown the door.
Not only has it hired Stephen Keller from UBS as head of European business development for another recruitment drive, but it’s added a number of senior investment bankers in the past 12 months. These include Matthew Wheeler, formerly a managing director for pan-European equities at Barclays, Jaime Brandwood, previously a managing director within UBS’s research team, and Preben Ramm, who worked as a director at the Swiss bank's Scandinavian rates desk. In total, 30 portfolio managers have been hired at Millennium in two years.
Removed from the cushy infrastructure supporting them in investment banks, banks’ prop traders are being thrust into an environment more akin to The Apprentice, where only the best manage to stick around for any period of time. Brevan Howard, which is also notoriously intolerant of underperformance, and BlueCrest are also providing new homes to investment banks’ traders.
For those joining other hiring hedge funds, though, performance is the least of their worries. SAC Capital, which has just been charged with fraud for insider trading, has also been taking on former investment bankers.
While its employees sweat over their future employment prospects, Steve Cohen has been throwing a lavish party. This is indicative of an culture that, according to the published indictment, required traders to give their best ideas to Cohen, fostered rampant competition and employed ‘research traders’ to check that employees were, indeed, giving their best ideas to Cohen.
And if you want to make it into the world’s biggest hedge fund, Bridgewater Associates, you’d better have more than a glittering CV. Ray Dalio told Bloomberg’s Businessweek that: “We are first interested in people’s values, second interested in their abilities, and least interested in their precise skills”. Its latest investment banking recruit – Michael Terry, who joined from Bank of America in April – spent from 2008-2011 trying to make it as a stand-up comic.