Wednesday, 23 July 2014
Last updated 11 hours ago
Oct 11 2011 | 9:01am ET
Wall Street banks are increasingly acting as headhunters for their hedge fund clients in an effort to secure their brokerage and trading business, reports the The New York Times.
The paper says it’s a perk, once offered informally, that has become established practice for Wall Street players like Goldman Sachs, Bank of America, Morgan Stanley and Deutsche Bank as new regulations and a weak economy have chipped away at their traditional profit centers.
Hedge funds have become a lucrative source of business for banks, accounting for an estimated 35% of trading commissions alone, according to Sanford C. Bernstein & Company analyst Brad Hintz.
BoA/Merrill Lynch offers recruiting as part of its hedge fund services. Stuart Hendel, the bank’s global head of prime brokerage, told the Times, “All we’re doing is providing a clearinghouse for managers to meet prospective employees. We don’t go looking for people, people seem to find us. And we make it very clear we’re not providing recommendations.”
The potential for conflicts of interest is clear: banks risk alienating existing clients by poaching their talent or competing with them for employees, says the paper. And from an investors’ perspective, there’s the risk a hedge fund will choose to do business with the bank that hired them rather than the bank that makes the most sense business-wise.
Critics of the practice, like Massachusetts’ chief financial regulator William Galvin, say hedge funds should, at the very least, report the value of the recruiting services they receive from banks (the paper says it's unclear whether they do).
“It’s the type of relationship investors should know about, or simply shouldn’t exist,” Galvin told the Times.
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…