Two articles today focus on the plight of investment banks' prop traders under the Volcker Rule.
On one hand, Bloomberg reports that Citigroup is contemplating moving its prop traders into hedge funds seeded with its own money. Or failing that, it says Citi might even scatter them 'across the bank's main client-facing trading operations based on their specialties.'
And on the other hand, Fox Business says Goldman Sachs has already moved half of its prop traders into its asset management business, 'where they will take market positions while dealing with clients.'
Unfortunately though, prop traders aren't waiting passively to find which fate is in store for them. The full force of the Volcker Rule may not be felt until 2017, but the Financial Times recently noted the disproportionate number of new hedge funds conceived by former banking traders, Meanwhile, hedge fund headhunters say banks' prop traders are honestly clamouring to get out.
"People are very excited about the prospect of joining a hedge fund," says one. "Most of them can't wait to leave."
There really aren't many jobs
The only slight problem is that hedge funds aren't doing much in the way of recruitment at the moment. And when they are hiring, traders aren't their priority.
"There has been a reduction in truly viable destinations for hedge fund talent," notes a new Heidrick & Struggles report on hedge fund hiring. "While at one time professionals had a
universe of literally hundreds of firms, this is really down to about 25-30 strong options today."
This barren landscape is confirmed by Barry Seath, managing director at Mirage, a London-based hedge fund recruiter. "There are a lot of good prop traders looking for work, but we're not seeing many roles for them any more," he says (although he adds that this may possibly because funds are cherry picking them directly without going through recruiters).
Another hedge fund headhunter says opportunities for banks' prop traders have definitely ebbed, but that some hedge funds are also proactively combing through banking prop desks to pluck out anyone good (he personally claims to be filling nine such roles, but unfortunately requested that we keep his identity concealed.)
Nor are they offering guarantees
He adds that most hedge funds don't appear to have hiked salaries, and aren't willing to pay guarantees. They are, however, willing to contractually commit to paying a percentage of P&L, and will often condone an 'accelerator' in which that percentage is hiked in the first year or two to compensate for any stock banks prop traders leave behind.