Hedge funds could soon be mopping up prop trading talent

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Assuming that bankers and politicians gathering in Davos this week don't manage to scupper the new Volcker Rule, hedge fund recruitment could be on the up in the near future.

If banks are no longer able to trade on their own account, or manage a hedge fund, there could be a rush of talent looking for new homes.

"While some will move to the larger hedge funds, because of the degree of experience and expertise these people have, many are already setting up their own businesses," says Jérôme de Lavenère Lussan, director of hedge fund consultancy Laven Partners. "These firms in turn will need to hire people - this is good news for hedge fund recruitment."

To some extent, Obama's crackdown could simply speed up the exodus of prop traders from investment banks. As Reuters reports, hedge funds have mopped up prop trading talent as banks shrink their activity in this area.

Assuming this flight continues, there could be some negative repercussions for pay, suggest David Durham, managing director of hedge fund search firm Durham Consultants.

"If the banks can no longer hold on to their prop traders, this talent would undoubtedly be queuing up to join hedge funds. In which case, the price of that talent would inevitably drop substantially," he says.

The UK's tougher regulatory stance is already driving investment bankers to other areas of the financial world. Headhunters Heidrick & Struggles have said they're being inundated with applications from bankers attempting to move to hedge funds and private equity firms.

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