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.
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.