Macaskill on markets: Prop traders – From London to Tripoli?
The obvious port of call for a prop trader leaving a comfortable berth at a bank is a hedge fund. Another potential destination nowadays is a sovereign wealth fund. Most sovereign wealth funds are treading cautiously as they move towards making greater use of tradable markets but their sheer size means that their impact on liquidity could be significant, along with their potential contribution to bank revenues.
Jon Macaskill is one of the leading capital markets and derivatives journalists, with over 20 years’ experience covering financial markets from London and New York. Most recently he worked at one of the biggest global investment banks
China Investment Corporation, the smaller of the two funds used to deploy China’s vast foreign exchange reserves, is already one of the most aggressive sovereign wealth fund players in structured investments and trading, and is set to become an increasingly important revenue source for banks.
CIC could receive a boost of as much as $200 billion in assets in the coming months, which is likely to accelerate its move into trading markets. The fund’s public investments dominate outside attention – most notably the $5.6 billion purchase of Morgan Stanley stock that marked its first big deal in December 2007. But the wild P&L swings in the Morgan Stanley investment during the crisis did not deter CIC from making bold structured credit trades during late 2008 and 2009. As banks scrambled to unload some of the toxic structured credit trades on their books during the crisis some dealers convinced CIC to purchase credit-derivative-based deals with notional values in the multiple billions of dollars.