NEW YORK (Reuters) - Kohlberg Kravis & Roberts (KKR.N) is hiring nine members of Goldman Sachs Group Inc’s (GS.N) proprietary trading team, in the latest sign of private equity firms widening their business beyond pure leveraged buyouts.
Goldman’s proprietary trading desk is being shut down in light of the “Volcker rule,” which limits the extent to which banks can bet with their own capital.
The exodus of traders gives KKR an opportunity to expand its business areas further, moving into the potentially lucrative long/short hedge fund space.
In a sign of their appeal, the Goldman traders had been in talks with a number of investment firms such as Perella Weinberg and Blackrock Inc (BLK.N) before settling on KKR, sources previously said.
KKR is hiring a group of Goldman traders led by Bob Howard, who heads Principal Strategies for Goldman’s U.S. business. The Goldman team, which makes bets on stocks rising or falling, will be part of KKR’s asset management unit that manages $13 billion, and will join early in 2011.
KKR is likely to launch a long/short hedge fund next year, a source familiar with the situation said.
KKR co-founders Henry Kravis and George Roberts said in an emailed statement that the move is part of a strategic build-out of its asset management platform.
“Our goal has been to add new capabilities and exceptional talent that allow us to strengthen our product offering and better service our clients,” they said. “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.”
KKR’s shares were up 2.9 percent at $11.70 while Goldman Sachs’ shares were down 4 cents at $159.56.
Private equity firms have been expanding from their traditional bread and butter business of striking leveraged buyout deals in recent years, as the industry matures.
Blackstone bought credit business GSO Capital in 2008 and took over management of nine leveraged loan and high-yield bond funds from Allied Capital Corp (AFC.N) earlier in 2010.
Goldman, in a statement, lauded the “strong performance record with a culture of disciplined risk management” of its former Principal Strategies business.
Goldman had been expected for months to wind down the unit in light of the sweeping U.S. financial regulatory reform package, which imposed limits on how much firms can bet with their own money.
The unit had as many as 70 employees across the world. Employees in Asia were reportedly considering a plan to start their own hedge fund. Employees in London were said to be considering other options.
Goldman has said proprietary trading accounts for as much as 10 percent of its revenue, which was $45 billion in 2009.
Morgan Stanley (MS.N) on Wednesday said it was restructuring its ownership of FrontPoint Partners, but will retain a minority stake in the hedge fund unit.
JPMorgan is reassigning its proprietary traders to its asset management unit.
A Credit Suisse CSGN.VX commodity trader departed with a team of proprietary traders last month to set up their own hedge fund, also as a result of the impending rules. Bank of America Corp (BAC.N) also cut up to 30 employees who traded for the bank’s account.
Reporting by Steve Eder and Megan Davies; editing by John Wallace, Dave Zimmerman and Bernard Orr