Guggenheim Partners LLC, the closely held investment bank and asset manager, plans to hire as many as 150 staff being pushed out of banks’ proprietary-trading units because of U.S. financial rules enacted last year.
Loren M. Katzovitz and Patrick Hughes, 49-year-old managing partners who have worked together since 1993, are launching Guggenheim Global Trading LLC in Purchase, New York, with an initial investment of $500 million as soon as June 1, they said yesterday in an interview. The firm plans to hire 100 to 150 traders and manage as much as $2 billion, they said.
Guggenheim, whose executive chairman is former Bear Stearns Cos. Chief Executive Officer Alan D. Schwartz, is setting up the new unit because regulatory changes are making experienced traders easier to hire, Katzovitz and Hughes said. The so-called Volcker rule has led banks including Goldman Sachs Group Inc. and Morgan Stanley to shut or spin off prop-trading units at the same time as new registration requirements make it harder for traders to start hedge funds.
“Historically the people leaving a prop desk would have gone out to a prime broker and launched a hedge fund,” Katzovitz said. “Now launching is just more difficult unless you have critical mass.”
Guggenheim Global Trading has already hired staff for some technology, legal and administrative functions and is in talks with trading teams, Katzovitz said. The new business, to be set up as a multistrategy fund investing Guggenheim’s own money, plans to hire 20 to 25 trading teams, he said.
“In 2007 it was difficult to attract the right talent to build something like this,” Katzovitz said. “The environment is just different right now and the quality of people you can get is just remarkable.”
The company is building out 30,000 square feet of floor space with more than 140 trading desks as well as offices and conference rooms to accommodate the new business, Hughes said.
“Traders are coming out and they’re saying, ‘Do I want to put out a couple of million dollars to start a fund or do I want to find a platform where I can go and trade and have a participation in the culture?’” Hughes said.
Katzovitz and Hughes met while at Kidder, Peabody & Co. in 1993 and worked together at Royal Bank of Canada, where Katzovitz was co-head of equity derivative and proprietary trading and Hughes helped lead the alternative assets business. They joined Guggenheim in 2002 and started a hedge fund of funds managed account platform called Guggenheim Advisors.
In 2006, the company sold 71.5 percent of Guggenheim Advisors to Bank of Ireland Plc, the nation’s largest bank, and repurchased it in 2009. Katzovitz and Hughes declined to comment on the terms of those transactions.
Katzovitz and Hughes said that Guggenheim is in a good position because it has the resources to comply with regulatory requirements and supply its traders with capital.
“We think we can build a very interesting institutional presence in the hedge-fund world,” Katzovitz said. “We are very keen to be building something a little different.”