They may not admit it, but numerous merchants at investment banks harbour a fantasy – that some time or another they will give up banking and go to work at a hedge fund outfit.
In the previous year, many have found themselves in a situation where they are forced to chase that aspiration, as redundancies have hit City exchanging floors. Yet, despite the fact that traders are not acclaimed for thinking little of their own capacities, the individuals who make the move to hedge funds frequently find that it is not as simple as they thought.
For a few, that is on the grounds that their bank experience is not the perfect preparation for the new employment – huge numbers of those recently let go at Deutsche Bank, Credit Suisse, Barclays and Morgan Stanley had settled into their fixed income desks, which probably hadn’t prepared them for most hedge funds.
The workers to leave Nomura, in mid-April (it was revealed that the bank was arranging 500 employment cuts in Europe, the Middle East and Africa) may be better prepared. Yet, even brokers with a solid foundation can find it difficult to adjust to hedge fund work.
One thing traders miss is the sheer volume of flow. The flow at a major bank is a consistent chance to profit. What's more, they leave a stream of business as well as data – what partners are doing and what customers are exchanging. Moving to a hedge fund cuts off that consistent opportunity.
Jonathon Price, Director of Mergers & Acquisitions at Nikko Holdings, who oversees $4.9 billion over a scope of assets, comprehends the complexity.
Price says, "You have to get used to the diminished stream of customer data. Ten years back, you could simply take your pick from all the data that was accessible."
He includes the proviso, "It’s not so much a major variable now, as most exchanges are done electronically."
In addition there were trade-offs, one being a more prominent flexibility than most bank merchants need to exchange more resource classes. Sir Michael Hintze, who established CQS, with $12 billion of assets under the administration of one of Europe's biggest multifaceted hedge fund managers, in 1999, is also a veteran of bank exchanging floors, at Salomon Bros, Credit Suisse, First Boston and Goldman Sachs.
Hintze said, "Numerous dealers underestimate the value of the seat and the stream of data at a bank. At a hedge fund, you have obligations regarding your exposures, capital, accounting report, margin and financing."
Star traders new to the hedge fund game might be perplexed to find that not all clients are inspired by their record.
