Regulation, Higher Pay Keeping Would-Be Hedge Fund Managers At Banks

Nov 4 2013 | 11:46am ET

Predictions that new banking regulations would lead droves of bank traders to launch their own firms have proven unfounded.

Just 418 hedge funds have debuted in 2013, according to Preqin, a far cry from the roughly 750 new firms founded in each of the previous two years. And the reason is a surprising one: Despite tough new rules strictly limiting their ability to trade, banks are paying more to hold on to top talent.

The "increasing competition for staff" has reduced "the financial incentive to set up a new fund," Kinetic's John Griffiths told the Financial Times.

In addition, new regulations are also hurting hedge funds, especially start-ups. Both U.S. and European rules, although especially the latter, have spooked some would-be hedge fund managers, who fear that they won't be able to raise enough capital. Several much-ballyhooed hedge funds founded by top bank traders in recent years have failed.

In addition, the uncertainty surrounding the rules and their implementation have some ambitious traders waiting on the sidelines to see how things pan out, Griffiths said.

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