Ex-Goldman Sachs prop traders struggle at hedge funds

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The Volcker Rule, one of the more controversial planks of Dodd-Frank, has yet to be finalized, though that is expected in time for a July implementation.

The effects of the rule have nevertheless been palpable for more than a year. Many of the top firms, including Goldman Sachs and Morgan Stanley, have shuttered proprietary trading units and scaled others back. A lot of prop traders left for hedge funds. A spate of top executives started their own funds. But the work of a prop trading executive isn't one and the same as the work of a hedge fund executive.

Underscoring that point, Bloomberg has taken a look at former Goldman Sachs traders who started their own funds and finds that not a single one is beating the market and all lost money in 2011.

"Poor timing led to the slow start for the Goldman Sachs diaspora as the European sovereign-debt crisis and a fragile economic recovery in the U.S. dominated global markets. Yet their failure to generate profits from investments also 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."

With that said, hedge funds as a group have had a rough time against the major stock indexes, so they are in good company. In particular, funds on average lost about 5 percent in 2011. So the ex-Goldman Sachs guys have plenty of company. It will be interesting to see how they fare in 2012.

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