Will Wall Street ruin hedge funds?

Fri Mar 30, 2007


On Wall Street, it’s now seen as imperative to stake a claim to the business of hedge funds, as margins on traditional business lines have shrunk. But as they scramble to build their franchises, the banks face rampant conflicts of interest, ongoing concerns about the impact of size on returns and still-lingering worries that the funds’ culture and independence will be lost. The money to be made, however, trumps it all.


As banks jostle their way to the top, worries about size, culture and conflicts persist.
By Michelle Celarier

James “Jes” Staley, global head of JPMorgan Asset Management and the architect of its acquisition of Highbridge Capital Management, remembers the warnings he heard when he left JPMorgan’s investment bank to head the institution’s storied asset management arm in 2001. “A lot of people told me that large banks destroy asset management firms,” recalls Staley, somewhat wryly, given that JPMorgan has emerged as the largest U.S. hedge fund manager, with $38.4 billion under management as of February 28.

JPMorgan made the first and, to date, the largest full-scale purchase of a hedge fund when, in December 2004, it paid an estimated $1 billion for Highbridge, a complicated transaction that is believed to give the bank 100% ownership by 2011. The deal was...

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