Reality Check: Goldman Stars Trader Can’t Make it Alone

Goldman Sachs proprietary traders were once held in a very high regard within financial circles. While the financial crisis eliminated plenty of traders, those at Goldman Sachs predominantly succeeded at a level matched by few. They generated billions of dollars for the bank and also earned handsome paychecks themselves. Today the economy is well on its way out of the crippling recession that hit in 2008 and the tables are also turning on Goldman Sachs’ once revered prop traders. Experts point to the Volcker Rule to explain how this phenomenon has come about. The Volcker Rule was instituted after the financial crisis in order to stop banks from making speculative trades with their own money. The result was the downsizing of many prop traders, including plenty from Goldman Sachs.

Many of Goldman Sach’s ex-prop traders did not give up. While the Volcker Rule banned speculative trades on an bank’s part (with its own capital), it did not ban individuals from making those trades themselves. So, many of these traders started hedge funds and attracted money due to their notoriety in the world of finance. Unfortunately, these hedge funds have not been as successful as hoped. Recently, the private equity group called KKR pulled the plug on a $510 million fund led by Bob Howard, the former head of Goldman Sach’s US equities and credit proprietary unit. Another former lead dog at Goldman Sachs, Pierre-Henri Flamand, started Edoma Partners in 2010. This group has also ceased operations after merely two years of operation. This closing in particular is a bit shocking as Edoma raised over $2 billion in capital. Edoma lost about 7% of its clients’ money before closing. Another fund called Benros, started by former Goldman prop traders Ariel Roskis and Daniele Benatoff, also shut down as well.Yet there have been a few success stories of ex-Goldman prop traders. One of Goldman’s co-heads of their Principal Strategies group, Morgan Sze, started up Azentus in Hong Kong after attracting a billion dollars of start up capital. It has made money since being founded three years ago and looks like it will last for the long haul.

Why are the alums of Goldman Sachs struggling so much? Most will say that former prop traders have a different skill set than those who manage large size hedge funds. While prop traders are primarily focused on serving only their superior at the bank, those who run hedge funds have to appease a slew of investors who can be highly critical if things don’t pan out. There is also the extra burden of raising funds and dealing with compliance and regulatory pressures.

Others point to the fact that these ex-prop traders no longer have access to the same information as they had when they were at Goldman Sachs. Critics aren’t stating that prop traders have access to inside information. Rather, they believe that prop traders have extra insight and tips on market conditions and trading analytics that empower them to better predict the ups and downs of investments. Once they leave banks like Goldman Sachs, they no longer have the same information flow, meaning they don’t exactly have a finger on the pulse of the market like they once did.


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