WEST PALM BEACH, FL (HEDGECO.NET) – Credit Suisse First Boston has devised a strategy to keep its staff from migrating to the hedge funds; the financial giant established a new incubator for would-beproprietary traders according to news reports. Such a strategy is aimed at discouraging its staff from moving over to the lucrative hedge fund industry. Over the years, many managers have been movingover to the hedge fund management arena because of its opportunities for such managers to earn performance income.
The new internal incubator, known as the Alpha Generation Group, was established within the equity division of CSFB, and has been staffed with seven employees, each of whom have been provided with US $50million trading portfolio. Such a strategy was squarely aimed at stemming staff outflows towards the hedge fund industry.
Hedge funds offer managers, in addition to management fees, additional performance fees of about 20% on the average. Such compensation offers an incentive to traditional money managers to move over to hedge fund management. Jim Kreitman, global co-head of equities in London said, �We found that our research and sales people, the ones coming up with great ideas for clients, are increasingly in demand in the market. There is only a limited amount of truly exceptional people that have the creativity to sit with a blank sheet of paper and come up with ideas that will make money. These people are valued and we want to keep them in-house and incubate them,� Kreitman added.
Other banking institutions have managed to set up hedge fund platforms for similar reasons, but such a strategy has been criticized because of alleged conflicts of interest, which may arise when traditional money managers also offer hedge fund portfolios. The trend now is that traditional money managers and brokerage houses are setting up such hedge fund management entities as subsidiaries of such parent companies.
These are some of the issues to be addressed by the SEC through its proposals to bring hedge funds under its regulatory oversight. However, mounting opposition to such proposals has stalled efforts by the US government industry regulators.
Paul Oranika
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HedgeCo.Net
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