Morgan Stanley Ponders Spin-Off Of Quant. Prop. Desk

Apr 24 2009 | 1:05pm ET

Morgan Stanley may transform its biggest proprietary trading desk into a hedge fund as a way to sidestep new government restrictions on pay and hiring.

The Wall Street giant may either spin out its quantitative process-driven trading group into a separate hedge fund firm, or could open it to outside investors as an internal hedge fund, The Wall Street Journal reports. The newspaper noted that no decision is imminent and that the group could remain with Morgan Stanley.

But PDT’s top traders are reportedly concerned about pay restrictions imposed by the federal government on firms receiving bailout money, as well as those on hiring foreign workers. Any move to spin the group off could be an effort by Morgan Stanley to hold onto talent that might otherwise leave to start their own hedge funds, or to join existing hedge fund shops.

Any plan to turn PDT into a separate hedge fund firm would likely see Morgan Stanley keep its current investment and a substantial ownership stake in the new firm. PDT has had only one down years since it was launched in 1993, and has earned Morgan Stanley some $6.5 billion in pretax income over that span.


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