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Hedge fund aspirants set to return to banks

Launches find it hard to raise capital; Investment banking salaries prove more appealing

Hedge fund launches have overtaken liquidations for the first time since 2008. According to HFR, 585 funds were liquidated as of the end of the third quarter this year compared with 715 launched. In 2008 and 2009, more than 1,000 funds were liquidated each year, while launches averaged around 700 a year.

With the role of proprietary trading remaining uncertain, traders have been leaving investment banks to set up shop on their own. For example, three new high-profile hedge funds have been created by former employees of Goldman Sachs’s principal strategies and alternatives investment group over the past 12 months. Eric Mandelblatt, Pierre-Henri Flamand and Mark Carhart have all begun their own funds. Andrew Hall, a Citigroup energy trader, launched Astenbeck Capital in February.

But several factors point to reasons for wannabe managers to stay put.

A senior manager at a global prime brokerage firm in New York says that the capital-raising environment remains challenged. Although launches have overtaken liquidations, the number of hedge fund launches is still on a par with those of 2008 and 2009. "The flash crash of last May caused a moment of circumspection within the bullish environment and slowed interest in new hedge funds," he says.

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