Goldman Sachs Group Inc. principal-strategies traders in Asia, which make bets with the bank’s own money, hired former prime broker Roger Denby-Jones as chief operating officer of a hedge fund firm they’re leaving the bank to start, four people with knowledge of the matter said.
Denby-Jones, 46, will become COO of the new Hong Kong-based hedge-fund firm to be led by Morgan Sze, global head of Goldman Sachs’s principal strategies business, said the people, who declined to be identified because the talks are private. He will help set up the company, though he won’t be a Goldman Sachs employee, they said yesterday.
Banks including Goldman Sachs and JPMorgan Chase & Co. are complying with the Dodd-Frank financial-overhaul act in the U.S. that prohibits them from risking capital by betting for their own accounts. Goldman Sachs, which makes about 10 percent of its revenue from proprietary trading, decided to disband the principal-strategies group, two people with knowledge of the decision said last month.
The recruitment of Denby-Jones is likely to help the new firm raise capital by easing investor concerns that proprietary traders are not experienced at managing risks, businesses or even calculating fund performances like hedge funds do.
“Hedge-fund teams out of proprietary desks are used to having all operational tasks and risk management taken care of by the bank,” said Francois Hora, Hong Kong-based Asia head of fund of hedge funds firm Signet Capital Management Ltd. which oversees $1.5 billion. “There is therefore a risk that they don’t give enough importance to the operational side of the business when setting up the hedge fund.”
The Goldman Sachs principal-strategies traders in Asia, still employed by the bank at the moment, are expected to leave after the end of this year, said the people. Their fund may start after the first quarter, two of them added. Edward Naylor, a Goldman Sachs spokesman in Hong Kong, declined to comment.
Denby-Jones joined Boyer Allan Investment Management LLP, an Asia-focused fund manager that oversees more than $775 million, in 2005 after 14 years at Goldman Sachs, where one of his roles was head of prime brokerage sales for Europe. He left as chief executive officer of Boyer Allan to “pursue a new business opportunity,” the firm said in a Sept. 30 statement.
Goldman Sachs’s principal-strategies team members in New York, led by Bob Howard, are in talks to join another asset- management firm, people familiar with the matter said last month. Some other traders and support staff of the group are likely to get roles within the New York-based firm, they said.
Sze is leading the Asia team to raise money for a new Asia-focused hedge fund, the people said last month. The group has more than 10 people in Asia, two of the people said yesterday.
Goldman to Hedge Funds
“From Eric Mindich and Dinakar Singh to Hyder Ahmad and Shafiq Karmali, there is a good track record of Goldman Sachs principal strategies alumni building successful hedge funds,” said Dan McNicholas, head of Asia financing sales at Bank of America Corp.’s Merrill Lynch & Co. unit. He declined to comment on Denby-Jones’s appointment.
Mindich started New York-based Eton Park Capital Management LP with $3 billion in 2004 with former principal-strategies department co-head Erland Karlsson. Singh, a former head of the principal strategies group, co-founded TPG-Axon the same year.
Ahmad raised about $1 billion for his Singapore-based hedge fund Broad Peak in 2007, Wall Street Journal reported then. Karmali last year founded Hong Kong-based hedge fund Cypress Lane Capital LLC.
Davide Erro, who led the Asia arm of a Goldman Sachs desk that later folded into principal strategies, managed as much as $3.8 billion as chief investment officer of Gandhara Capital. Turiya Advisors Asia, the Hong Kong-based hedge fund firm he set up after Gandhara’s closure, raised $320 million for its fund by last month.
Pierre-Henri Flamand, Sze’s predecessor as global head of the group, left earlier this year to set up London-based hedge fund called Edoma Capital Partners LLP, two people with direct knowledge told Bloomberg this week. He is expected to raise half a billion dollars in the coming months, they said.
“The key question for a proprietary desk spinoff to answer is not one about their talent, but one about their business- management ability as their careers have been cocooned with an investment bank,” said Paul Smith, a Hong Kong-based managing director of asset manager and hedge-fund distributor Triple A Partners Ltd.
A strong COO who is also a partner and gets the necessary resources would help free up the fund manager’s time to focus on investments, Hora said.