Proprietary trading desks at banks are history due to the Dodd-Frank Act’s Volcker Rule, named for former Federal Reserve chairman Paul Volcker, which bans banks from making speculative trades with their own money. Star traders lead the exodus.
When Pierre-Henri Flamand and Morgan Sze launched their own hedge funds, they had a very big leg up — they’d been senior proprietary traders at Goldman Sachs. This helped them to raise billions of dollars for their funds.
But it’s easier to launch an emerging fund with the reflected glow of Goldman than to run it. Edoma Partners, started in November 2010 in London, is reportedly lagging behind rivals this year. The $1.8 billion fund, which makes bets on corporate events like mergers, bankruptcies and restructurings, was down 0.85 percent at the end of the first quarter, bringing its losses since inception to 3.1 percent. Goldman in 2010 depicted its proprietary trading as contributing about 10 percent of revenue.
According to the Credit Suisse Global Survey of Hedge Fund Investor Appetite and Activity, long/short equity and event-driven strategies saw the largest year-on-year declines in appetite, after a highly publicized, challenging year for both in 2011. “Our results also indicate the growing appeal of new or 'emerging’ managers,” the report notes, adding that interest in hedge fund launches and seeding opportunities has gained momentum, leading to larger initial ticket sizes and to more experienced portfolio managers taking the leap and striking out on their own. “Investors remain highly selective, focusing on pedigree and the institutional quality of the business.”....