Goldman Prop Heading To KKR
And so the chapter of Goldman's prop trading operation comes to an end. As Dealbook reports, "famed New York proprietary trading desk is headed to Kohlberg Kravis Roberts, as the investment bank winds down the operation to comply with new federal regulations for Wall Street." Of course, all those who are left at Goldman prop will be put in "client facing" positions, which means nothing really as they will merely hold inventory based on what Goldman's flow bias is, even as Goldman follows in Morgan Stanley's footsteps and ramps up its VaR to fresh all time highs.
More from Dealbook:
Members of the team, led by Bob Howard, will help bolster K.K.R.’s own services as the now-public firm seeks to expand beyond its core private equity businesses. The firm has been building out its fixed income and capital markets divisions.
“This is part of a strategic build out of our asset management platform,” K.K.R. said in a statement. “Our goal has been to add new capabilities and exceptional talent that allow us to strengthen our product offering and better service our clients. Bob and his team will be an ideal fit for that objective as we’ve been impressed with their investment experience and performance as well as their ability to manage risk.”
K.K.R.’s main rival, the Blackstone Group, already has four distinct operations, from buyouts and real estate investing to hedge funds to advisory services.
What apparently was not discussed is the unprecedented tribulations that Blackstone's various "hedge funds" have had over the past 2-3 years, especially its distressed group, as they have tried unsuccessfully to mimic the company's core LBO competency. We are confident that without the benefit of flow trading for advice on where the block trades are coming to going, KKR's prop shop will be merely another mediocre fund generating just barely passable alpha (if that) but really nice levered beta (courtesy of all those great Prime Broker ties to Goldman), but collecting 2 and 20 nonetheless, courtesy of piggybacking on intangibles that just because they have worked in the past are expected to continue doing so in the future.