Wall Street investment banks have always gone after the best and brightest financial talent. Now they seem to be brokering that skill and providing candidates for hedge fund jobs at their clients’ firms.
DealBook reports that what had been an informal practice at many big banks (passing along resumes or making introductions among industry professionals), has become a more established practice. Banks such as Goldman Sachs, Morgan Stanley, Deutsche Bank and Bank of America have ramped up their recruiting efforts for hedge funds in an effort to gain favor and secure lucrative brokerage and trading business from the funds. Goldman, for example, calls the practice “talent introduction.”
But critics contend that without important disclosures or restrictions in place, it raises all sorts of questions about conflicts of interest. What if a Wall Street firm poaches talent from one hedge fund for another? And would a hedge fund executive feel obligated to do business with the bank that helped him get a job, rather than a bank that may offer a better relationship for investors?
“All we’re doing is providing a clearinghouse for managers to meet prospective employees,” said Stuart Hendel, global head of prime brokerage at Bank of America Merrill Lynch. “We don’t go looking for people, people seem to find us. And we make it very clear we’re not providing recommendations.”
Goldman has said its consulting services have “robust policies and procedures” in place to prevent conflicts of interest. And that they’re not “in the headhunting business.” Other firms declined to comment for the DealBook article.
But the practice raises new questions about these “soft dollar arrangements” where a hedge fund manager steers business to a particular bank in exchange for favors. These deals can impact investors, who are often unaware of the relationship.
Hedge funds have turned into a bigger and bigger revenue stream for many Wall Street banks, amounting to some 35 percent of trading commissions, according to data from Brad Hintz, an analyst at Sanford C. Bernstein & Company. In a highly competitive space, the banks, which provide credit and execute transactions for hedge funds through their prime brokerage and trading divisions have tried to expand the services they can extend to hedge funds to win more business.
Acting as a recruiter seemed to be a logical extension of those services. Wall Street firms have now created rich databases that track hedge fund openings and potential candidates, and even have staff dedicated to the service.
All this may be good news for hedge funds looking for talent. But what if you’re working for a big bank in their prime brokerage unit and want to move into a hedge fund job? Would you be part of this database or would that jeopardize your position at the bank? Add your comments below.