Morgan Stanley Prop. Desk In Hedge Fund Spin-Off Next Year

Jan 10 2011 | 1:48pm ET

Morgan Stanley’s quantitative proprietary trading desk will become an independent hedge fund firm late next year.

The process-driven trading group will be spun off as PDT Advisors at the end of 2012. All of the group’s roughly 60 employees are expected to join the new firm, which will be led by PDT chief Peter Muller.

Under the agreement reached between Morgan Stanley and Muller, Morgan Stanley will pull its own capital from the group over the next year as PDT begins to raise money from outside investors. The Wall Street giant will have an option to retain a preferred stake in PDT Advisors—and likely will, according to published reports—and will probably serve as its prime broker. PDT will acquire some assets from Morgan Stanley as part of the deal.

The spin-off will bring Morgan Stanley into compliance with the Dodd-Frank financial overhaul law, which bars banks from proprietary trading and forbids them from investing much of their own capital in hedge funds and other alternative investment funds.

With the exception of a tough 2007—which it shared with most quant. funds—PDT has posted consistent returns for Morgan Stanley since Muller set it up in 1993. In some years, the group was responsible for a quarter of the firm’s total earnings.

“PDT has generated an enviable track record with Morgan Stanley since its inception in 1993,” Morgan Stanley CEO James Gorman said. “We are delighted to continue our partnership with PDT as it looks to expand its business by taking on third-party investors.”

Morgan Stanley has already spun off its hedge fund unit, FrontPoint Partners.


In Depth

Whisky Business: The Ultimate Liquid Alternative Investment

Sep 15 2014 | 7:02am ET

David Robertson knows his single-malt whisky—he was the Master Distiller at the...

Lifestyle

Hedgies Rock Out For Children's Charity

Sep 15 2014 | 8:40am ET

It's that time of year again—when hedgies trade in their spreadsheets for guitars...

Guest Contributor

Volkered: How Financial Sector Reforms are Creating Opportunities for Hedge Funds

Sep 16 2014 | 11:28am ET

New regulations have dramatically curtailed proprietary trading activity in investment...

 

Editor's Note

    Get A Sneak Peak Of The Alpha Pages

    Aug 25 2014 | 11:21am ET

    As many of you know, FINalternatives was recently acquired by the owners of Futures magazine, a firm called The Alpha Pages LLC. Today marks the soft-launch of a new sister site for both publications. As its name suggests, The Alpha Pages will cover all types of alternative investments, going far beyond the more well-known ones such as hedge funds and private equity. Read more…

 

Futures Magazine

September 2014 Cover

The London Whale: Rogue risk management

Credit default swaps brought down the London Whale and cost JPMorgan $6.2 billion. Here is how it happened.

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.