Volcker rule sending new hedge funds to market - HSBC

ZURICH Thu Mar 1, 2012 5:03pm GMT

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ZURICH (Reuters) - HSBC's alternative asset management arm is scouring the market for promising new hedge fund managers, whose ranks are swelling ahead of the imposition of the Volcker rule, which cracks down on banks trading with their own money.

The rule could prove a boon for HSBC's recently launched emerging manager programme as it is providing hedge fund managers across strategies such as long-short equity, distressed debt and trading funds.

"Several opportunities are arising from the Volcker rule. People are leaving the banks and launching their own funds," Peter Rigg, head of HSBC's (HSBA.L) alternative investment group told Reuters at a presentation in Zurich.

The Volcker rule, named after former Federal Reserve Chairman Paul Volcker, prohibits banks from trading with their own funds for profit, encouraging so-called proprietary traders to set up shop on their own.

U.S. regulators said on Wednesday they are unlikely to have the rule finalised by a July deadline, but many managers are still exiting banks ahead of when the ban is due to come into force.

Ex-Goldman Sachs (GS.N) stars like Pierre-Henri Flamand and Morgan Sze are among those to have already made the move.

Rigg said many managers perform best in the early years, when their funds are still small and they rely on strong returns to earn performance fees and draw in clients, rather than living off management fees levied on large asset bases.

He said HSBC's $38 billion (23.8 billion pound) alternatives investment business can negotiate good fee discounts with these managers which it then passes on to its clients.

Rigg said HSBC's funds of hedge funds were currently in "risk off" mode, meaning they are underweight strategies like long-short equities which rely more on market fundamentals than investor sentiment, while favouring strategies which look to profit from market trends, as well as smaller, nimble managers.

(Reporting by Martin de Sa'Pinto; additional reporting by Tommy Wilkes in London; Editing by Elaine Hardcastle)

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