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* Cavanagh parts with boss who shaped his career
* Long-time banker discouraged by new regulations
* Carlyle picks up finance veteran as its profit rises
* Cavanagh joins Youngkin as Carlyle co-president (Adds details about Cavanagh's reasons for the move, adds analyst's comment)
By Greg Roumeliotis and David Henry
NEW YORK, March 25 (Reuters) - Private equity firm Carlyle Group LP poached one of Jamie Dimon's closest aides, Michael Cavanagh, from JPMorgan Chase & Co on Tuesday, in a surprise hire that reflects both the increasing prominence of so-called shadow banking and the regulatory challenges faced by banks.
Cavanagh, 48, who was co-head of JPMorgan's corporate and investment bank, will become the co-president and co-chief operating officer of Carlyle, as the alternative asset manager puts its own succession plan in place. He will also join Carlyle's executive board.
He will share both new titles with Carlyle veteran Glenn Youngkin, 47, who has until now been sole chief operating officer.
Cavanagh's departure is a blow to Dimon, and sources familiar with the situation said the move came as a surprise to senior bank executives. Dimon hired Cavanagh more than two decades ago and has worked with him ever since. In recent years, Cavanagh, who was also a member of the bank's operating committee, had come to be seen as one of the potential successors to the JPMorgan chairman and CEO. Daniel Pinto, who had the same role as Cavanagh, was named sole CEO of JPMorgan's corporate and investment banking division.
Cavanagh's move underscores the challenges banks face in retaining talent amid an onslaught of regulations in the aftermath of the financial crisis, which have complicated bank managers' jobs and reduced their pay.
Several other long-time bankers, such as former JPMorgan executives Jes Staley and Steven Black, have moved in recent years to private equity, hedge funds and other more lightly regulated corners of high finance, broadly referred to as shadow banking. The sector offers executives more business opportunities as banks pull back, as well as higher pay.
Carlyle's founders - David Rubenstein, William Conway and Daniel D'Aniello - each received $92.9 million in dividends and salaries in 2013. They also received $108.1 million, $252.8 million and $109.5 million, respectively, from Carlyle's funds in 2013 as a result of investing alongside the firm's clients. By comparison, Dimon was paid $20 million for 2013, with $18.5 million of that coming in restricted stock.
Cavanagh told Dimon over the weekend that he was considering the job after having been approached by Carlyle earlier this year, one of the sources said. The increased demands from changing regulations and JPMorgan's myriad problems in recent years with regulators were factors that played into Cavanagh's decision, the source added.
Over the past two years, new people have moved into seven of nine key positions at JPMorgan, according to a count by analyst Mike Mayo of CLSA. Cavanagh, Mayo said, "was a familiar face in a shuffled deck."
Cavanagh, the source added, was not tired of waiting in the wings to become chief executive, as Dimon, one of the longest-serving U.S. bank CEOs, shows no signs of stepping down.
Cavanagh will be on "gardening leave" at JPMorgan until he joins Carlyle in the summer. Gardening leave is the typical cooling-off period that senior executives go through when they switch jobs, allowing them to receive their salary while not actively carrying out their duties.
The decision marks a major career move for Cavanagh, who went to work for Dimon at age 26 at Smith Barney. The brokerage was one of the companies that Dimon's mentor, Sandy Weill, would roll up into Citigroup Inc. Dimon personally interviewed Cavanagh for the job, according to the source.
After Weill fired Dimon, Cavanagh followed him to Chicago-based Bank One Corp and then on to JPMorgan.
Cavanagh was tasked in 2012 with overseeing the bank's internal investigation of the derivatives loss that became known as the "London Whale" trades.
Before taking his current role at JPMorgan's investment banking arm, Cavanagh headed the unit that manages JPMorgan's cash for corporations and keeps securities in custody for large money managers. Earlier, he served as chief financial officer.
"While we would prefer he stay at the firm, we are glad he is going to a valued client in Carlyle," Dimon said.
With Cavanagh's departure, the most obvious successors to 58-year-old Dimon from within JPMorgan include Pinto and Chief Operating Officer Matthew Zames, 43, according to sources inside the bank.
Zames got his current job after Dimon dispatched the former bond trading executive to salvage the London Whale derivatives portfolio and to overhaul the bank's Chief Investment Office where the bad trades were made.
Other possible in-house successors include Gordon Smith, 55, the CEO for the consumer bank, which accounts for about half of the company, and Mary Erdoes, chief executive of asset management.
Carlyle does not handle deposits from savers, is much smaller than JPMorgan and does not face the same regulatory requirements that are forcing banks to reconfigure and shrink their businesses.
Carlyle's fund investors are mainly public pension funds, insurance firms, endowments and sovereign wealth funds.
Private equity firms are posting bumper profit thanks to red-hot capital markets that allow them to sell companies for top dollar. This has enriched their investors as well as insiders at these firms.
Founded in Washington, D.C., in 1987, Carlyle had $189 billion in assets at the end of December in private equity, credit, real estate and funds of funds. JPMorgan has $2.4 trillion of assets.
The appointments also highlight the succession planning under way at some of the major private equity firms, which have been run by their founders for decades.
Now in their 60s, Carlyle's founders also poached veteran dealmaker Kewsong Lee from Warburg Pincus LLC last year and named him deputy chief investment officer for private equity.
"He is a very capable executive and I think will be a great addition to their team," Oppenheimer & Co Inc analyst Chris Kotowski said.
Cavanagh and Youngkin will manage Carlyle's global operations on a day-to-day basis. While neither has been explicitly named as successors to Carlyle's founders, the move positions them to potentially take the reins in the future. (Additional reporting by Aman Shah in Bangalore and Steve Slater in London; editing by Kirti Pandey, Alden Bentley and Matthew Lewis)