UBS AG, the largest Swiss bank, said it had been in talks with “dozens” of proprietary traders from firms worldwide who may start their own hedge funds as banks seek to comply with new US rules aimed at curbing risk.
“A lot of it is just talk and chatter, but there are very advanced discussions as well,” Stuart Hendel, UBS’s global head of prime brokerage, said in an interview in Singapore yesterday. “In the next 12 months, there is going to be much more of a startup phase than there has been in the last couple of years.”
Banks including Goldman Sachs Group Inc and JPMorgan Chase & Co are complying with the Dodd-Frank financial-overhaul act in the US that prohibits them from risking capital by betting for their own accounts. Goldman Sachs, which makes about 10 per cent of its revenue from proprietary trading, decided to disband the principal-strategies group, two people with knowledge of the decision said last month.
Some traders are teaming up to form groups, said Hendel, who is based in New York and was in Singapore to attend UBS’s annual hedge fund conference. Managers will also leave existing hedge-fund firms that haven’t reached their high-water mark, or the historical peak net asset value of a hedge fund, he said.
“Funds with poor performance will splinter,” he said. It will be harder to raise assets as investors need managers to put in place the necessary infrastructure and risk management platforms before putting their money into hedge funds, he added.
“The bar is going up,” Hendel said. “You can’t start with three people in a garage anymore on your Mastercard.”