SocGen Trader Kahn Who Unwound Kerviel Bets Plans Hedge Fund

  • Maxime Kahn’s stock-picking fund to start in third quarter
  • New business bucks European trend of funds closing down

Maxime Kahn, the former Societe Generale SA official who helped unravel the wreckage left by convicted rogue trader Jerome Kerviel, is preparing to start his own hedge fund to bet on rising and falling share prices.

The Paris-based fund will start with as much as 400 million euros ($422 million) in the third quarter of next year and use both quantitative techniques and fundamental analysis to pick stocks globally, Kahn, 45, said in an interview. The initial capital is coming from one investor that he declined to identify.

The move comes amid a shrinking hedge-fund industry in Europe, where startups are becoming rarer because of mounting costs and poor performance. About 557 hedge funds have closed in the region from the start of 2015 through September this year, while only 476 have started, according to Eurekahedge data.

"It’s going to be a big challenge,” said Kahn, who is building a 10-member team to start the fund. “But the people I’m gathering from a lot of different horizons have the skills to face this."

Investors including some of the largest pension funds in the world have pulled $77 billion out of hedge funds this year, after allocating a net $44.1 billion in 2015, according to data provider eVestment.

Prop Trading

Until 2013, Kahn helped lead proprietary trading at Societe Generale, a business that used the lender’s own cash for stock wagers. Regulations put in place since the global financial crisis have imposed stricter capital rules on banks, deterring them from using their own money to trade and forcing them to shut or separate such desks. Kahn had been integrating the French bank’s proprietary traders into its market-making operation in response to the changes.

“In the middle of this year, I decided that this process was over and it was time to get back to the buy side where I belong," said Khan, who left the bank in mid-September as the co-head of European stock trading.

The initial capital alone will make Kahn’s fund one of the larger startups in Europe. Only about 18 percent of the nearly 4,000 European hedge funds manage $500 million or more, according to data from Eurekahedge.

During his time at Societe Generale, Kahn helped unwind almost 50 billion euros of unauthorized bets made by Kerviel, who was convicted in 2010 of abusing the bank’s trust and falsifying documents and data after causing a record trading loss at the bank. In September, judges cut his fine to 1 million euros.

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