There’s a buzz over George Packer’s long article on Raj Rajaratnam in the New Yorker this past week. But Felix Salmon, writing in a Reuter’s blog, suggests that those in hedge fund jobs are almost always looking for an edge in trading, and far more may be treading the fine line between exclusive information and criminal activity.
He writes about the “slippery slope of complicity” that overcomes otherwise well-intentioned professionals. “Start with a job offer, and an office culture. And then slowly raise the money and the pressure, and bring as many people as you can inside the fold. Long before they do something illegal, they’re tainted, and won’t give up their colleagues.”
Wall Street and hedge fund trading is built around access to exclusive information. As examples, Salmon lists the expensive investment newsletters, subscription websites and private conferences that are designed, presumably, to give a select few investors access to exclusive investment advice.
Information is power. Though truly exclusive information is rare, it does give one an edge. Another example: the recent revelations by the research firm, Muddy Waters, on Sino-Forest in China.
“Everybody’s looking for the information edge — and the point at which exclusive information crosses over into being inside information is may not always be obvious from the point of view of an ambitious analyst. If I overhear two businessmen talking about an upcoming deal, I can act on that knowledge perfectly legally,” writes Salmon.
The “architecture” of Wall Street (and the hedge fund industry) is designed to encourage the ferreting out of exclusive information. And with only a thin blue line of regulators trying to clamp down on illegal activity, the prospects of insider information and illegal trading continuing are good. Hedge fund traders and analysts will continue to push for an edge.
What’s your take? Do you think the pressures to succeed in a hedge fund job inevitably forces people to step over the line? Add your comments below.