The Volcker Rule was expected to lead to a stream of prop traders leaving the bulge bracket banks to set up their own shops.
That trend played out as expected for the most part. The surprise has been the outcome, as not a lot of these prop-trader-created hedge funds have panned out. Traders Magazine notes that many of these funds are now having trouble raising capital. Many ex-prop traders may have underestimated the difficulty in this endeavor.
One expert told the bank that, "It used to be the checklist was a one-pager. In today's day and age, due diligence questionnaires are pretty voluminous, and there are a lot of things a fund needs today to demonstrate to their investors that it's not just performance that they're offering."
Some new funds are said to be "launching without any outside capital at all. And whether they have outside capital or not, traders have to adjust their expectations to the new realities of the current environment."
I would add that performance issues have also cropped up. I noted recently that ex-traders at Goldman Sachs have had trouble beating the market as of late and have suggested that trading at a big bank is not one and the same as running a hedge fund. They are distinct different disciplines at the CEO and high executive level. With that said, hedge fund start up as a whole have suffered. Everyone is having a rough time.
- here's the article