For many hedge funds it looks like one of the best perks of working with Wall Street banks besides receiving office space and getting funds raised for new portfolios is the free recruiting, the New York Times reported.
The hedge funds aren’t the only ones benefiting in this relationship.
The banks also gain from the recruiting because they can secure prime brokerage and trading business with hedge funds, the report said.
According to the Times, major Wall Street firms such as Goldman Sachs, Bank of America, Morgan Stanley and Deutsche Bank have made headhunting, which was once done informally, an established practice in order to make up for profit centres as a result of the spate of new regulations and the weak economy.
Bank of America Merrill Lynch is one of the major players that offers recruiting as part of its hedge fund services.
“All we’re doing is providing a clearinghouse for managers to meet prospective employees. We don’t go looking for people, people seem to find us. And we make it very clear we’re not providing recommendations,” Stuart Hendel, global head of prime brokerage, told the Times.
However, this recruitment process for bank’s hedge fund clients could prove to be controversial, according to the Times.
That’s because of the potential for conflicts of interest to arise. For example, poaching hedge fund talent or fighting over potential employee could deter the client from doing business with that bank. Another potential conflict of interest is if a hedge fund executive chooses to do business with the bank that he used to work for rather the firm that is best for the hedge fund’s investors.
Spokespersons from Goldman and Bank of America told the Times they have policies and procedures in place to prevent conflicts of interest. Morgan Stanley and Deutsche did not provide the newspaper a comment on their recruiting practices.