It’s no secret that some star traders at big Wall Street investment banks may be looking for greener pastures in the wake of the new Volcker rule. The Volcker rule is part of the Dodd-Frank financial reform bill signed by President Obama last month. The rule stipulates that big banks can’t invest more than 3% of their Tier 1 capital into private equity and hedge funds.
The rule mostly affects the big firms with proprietary desks such as Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup and Bank of America. An article in TheStreet.com says Goldman, for instance, is considering moving its two large proprietary trading desks, which manage about $9 billion, into its asset management arm.
But working in asset management may be a downgrade for these top guns. Apparently there’s a belief on the street that proprietary traders get better information than their counterparts in asset management. And it’s not without some quantitative support. Goldman’s proprietary results in areas such as fixed income currencies and commodities have tended to be better than their asset management cousins.
If proprietary traders are forced into the asset management division, it could mean they’ll be even more willing to entertain offers from hedge funds looking to lure away top talent. The assumption is that hedge funds could match the information resources to which they’ve grown accustomed.
What’s your take? Do you think the big firms give their own desks an edge? Add your comments below.