Investment Banking's New Allure?

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Two big names have quit the wild and wacky world of hedge fund management and returned to the investment banking fold. Is it time to go back to banking?

As previously reported, Stu Hendel retreated to alma mater Morgan Stanley this week. Separately, Albert Saporta, founder of Alternative Investment Management & Research in Geneva, sold out to ABN AMRO.

While Hendel declined to comment on the impetus for his return, Saporta said he expects others to follow his lead by moving from smaller independent groups to large institutions.

"I now believe that the hedge fund business model will be increasingly at a competitive disadvantage to large proprietary trading operations, whether inside banks or very large hedge fund groups. I suspect that my counter-fashion move back into a large organization will not be an isolated event," he said.

However, Dermott Coleman, director of event-driven fund Sisu Capital, doesn't believe the situation is as desperate as all that. "If your strategy is largely dependent on quantitative edge or sheer weight of capital, big investment banks may be able to do it better," he says. "But when it comes to qualitative, research-driven investing, hedge funds like Sisu have the advantage."

A banking refugee himself, Coleman says he would "categorically 100 percent never go back" and emphasizes the lifestyle upsides of hedge fund work.

But David Durham, head of search firm Durham Consulting, maintains the appeal of hedge funds is financial: "I know three people who set up a hedge fund two years ago that is now running in excess of $1 billion," he says. Those three, he adds, have each made around $23 million in equity value alone. "How are you possibly going to do that in a bank?" he asks.

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