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Money talks, hedge fund employees walk?

With falling returns for hedge funds, it looks as if a trend might be developing for their employees to return to less risky, better remunerated roles in investment banks.

So Stuart Handel, chief operating officer of hedge fund Eton Park Capital Management, is leaving the firm to return next year to Morgan Stanley, where he will head the firm’s global prime brokerage operations. The obvious question: “What is wrong at Eton Park?” Handel is, after all, the fourth person to depart from the firm this year. But performance has been decent and there are no whispers that the firm has been misbehaving. Could it be simply that the money is better back on Wall Street?

If hedge fund returns are coming down but operational costs remain the same or even increase, profits are clearly being eaten into, and that means smaller bonuses all round.

Tom Hudson, CEO and founder of $1.7 billion Pirate Capital, has certainly had cost issues to contend with. The activist fund has had poor performance, and three of his investment professionals resigned at the end of September, reportedly because they were unhappy with cost cuts Hudson was implementing and expected diminished bonuses. Two analysts were also fired.

Handel’s move and the plight of Hudson raises the suspicion that traders are beginning to question the value of working for a hedge fund.

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