When ex-Goldman Sachs (GS) Group traders Pierre-Henri Flamand and Morgan Sze left the company, they were able raise “more than $4.5 billion for their own hedge funds, helped by the experience of having worked at what once was Wall Street’s most profitable securities firm,” reports Bloomberg. “So far, none of them has made money for clients.”
And Flamand and Sze were’t the one ones who left Goldman Sachs to manage their own money. Daniele Benatoff and Ariel Roskis did same. Yet, these four ex-Goldman Sachs traders “trailed this year’s stock market rally after losing money in 2011.”
Timing obviously plays into this to some degree. Last year was tough for many hedge funds and while they weren’t all lemons even some very well-established and historically very successful hedge funds lost big, like John Paulson’s Paulson & Co. The European debt crisis and a fragile economy also invariably had a role. But, maybe it is simpler than that – maybe it is just harder than they thought. As Matias Ringel, head of research at EFG Asset Management, said, “In spite of their pedigree, many ex-Goldman prop traders have found it much harder than they originally thought to make money.”
Bloomberg writes, “their failure to generate profits from investments… highlights the differences between trading at a bank, with its extensive research, technology and compliance operations, and running a hedge fund where clients pay top fees and are less tolerant of risk.”
Could it be that simple? Maybe.
Looking at the top paid hedge fund managers for last year, there is a strong trend toward funds that use quantitative strategies while exploiting inefficiencies related to macro events, as with Jim Simons of Renaissance Technologies, Ken Griffin of Citadel LLC and Ray Dalio of Bridgewater Associates.