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Dillon Read Capital Management: UBS does a U-turn

Challenges of running prop and client money prove too much for Dillon Read Capital Management.

John Costas, UBS

John Costas, UBS: DRCM offered him a painful lesson

The lesson to be learnt from UBS’s unexpected closure of Dillon Read Capital Management? Don’t mix bank and client money.

John Costas, head of UBS’s investment bank, was given the remit in June 2005 to carve out and run the bank’s proprietary trading business. The subsidiary, Dillon Read Capital Management (DRCM), was to be developed so that outside investors’ money would be accepted in managed accounts and funds. Both the outside money and the prop money operations would be headed by Costas.

The vastness of the task at hand became apparent last year. The legal entity was formed in January 2006 but it took until June 2006 to move over the proprietary trading positions. Not until then did marketing of the funds to outside parties begin, with the funds not up and running until November.

"In terms of infrastructure and working out how to run proprietary capital alongside external money, it was becoming a nightmare," says a source familiar with the efforts.

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