03/31/2010

Moore Raiding Banks for Proprietary Traders

Moore Capital has been aggressively recruiting proprietary-trading teams from big investment banks.

In the past two months, the $14 billion hedge fund manager has hired four people from Citigroup's prop desk, including chief trader Matt Carpenter and his deputy, Matt Newton. The most recent moves: This month, Moore enlisted Citi healthcare-stock portfolio manager Jay Kim and his equity analyst, Susan Lee.

Moore, led by Louis Bacon, isn't the only big-name fund operator looking to lure proprietary traders frustrated by the shifting regulatory landscape and post-financial-crisis limits on compensation. Balyasny Asset Management, Blackstone Group's hedge fund business, Citadel's PioneerPath Capital unit, Diamondback Capital, Millennium Management and SAC Capital all are on the prowl for Wall Street talent.

The hedge fund firms have gotten a boost from the so-called Volcker rule, the Obama Administration's proposed ban on proprietary trading by regulated banks. The proposal is named for former Federal Reserve Chairman Paul Volcker, an advisor to President Obama. Some market players noted, however, that the most aggressive hedge fund shops have been targeting bank prop desks since the market meltdown in late 2008. And some investment banks - including Bank of America, Morgan Stanley and RBC - have been equally aggressive in recruiting outside portfolio managers to join their desks.

Carpenter, who ran $1 billion of proprietary capital for Citi, is setting up a long-short equity group at Moore based on the model he had in place at Citi, according to a person familiar with his plans. Two-person teams consisting of a portfolio manager and an analyst will each run independent books across various sectors.

At the same time, Moore is scouring bank prop desks for senior distressed-credit portfolio managers. The New York firm has been looking to beef up its fixed-income business since credit specialist Tim Leslie spun out his team in 2008 as James Caird Asset Management in London. Earlier, Victor Khosla ran a distressed-debt portfolio for Moore, but left in 2003 to form Strategic Value Partners of Greenwich, Conn.

For successful prop traders, joining a big hedge fund operation is one of several options available to them. So-called seed investors have been busy raising capital to back startup managers in exchange for a cut for their profits. Some large family offices, meanwhile, are hiring in-house portfolio managers, offering them an opportunity to establish a track record before launching a hedge fund.

Separately, some broker-dealers are giving portfolio managers a platform to run their own money, providing infrastructure and a line of credit that gives them leverage. The manager gets to keep the lion's share of his gains - anywhere from 50-90% - but also has to eat all of the losses in the event of a bad month.

In addition, there's a growing number of unaffiliated proprietary-trading desks willing to provide emerging managers with startup capital. These outfits operate like a hedge fund, but with a single investor. Managers typically get to pocket 70% of gains. Another selling point: These firms wouldn't require a manager to register with the SEC.

The drawback of a private prop desk, one institutional investor noted, is the lack of a diverse investor base. "The problem is, your business is only as good as your one investor," he said. "If he's not happy, you're not happy."

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