Citigroup to pay $180 million to settle charges of defrauding fund investors

Hmm, that's a tough question and I'm going to be pretty controversial right now - but hear my reasoning.

This applies to U.S. banks.

Question - if you are a talented trader, would you go to a hedge fund where you are paid a contractual % payout, or would you stay at a bank where regulators are clamping down and your pay is based on discretion (no contractual % payout)? Clearly a loaded question.

The truth is prop trading at this point is pretty much gone at banks. If you are trading at a bank, you are a risk manager not a risk taker. The secondary problem is that spreads have come in so much and they are so tiny, that how do you make money?

Let's say somebody wants to buy 100 shares of best buy, the spread is only $.01 wide. And you have to make a market and somehow make a profit. Secondly, the talented traders are on the other side of that. Thirdly, if it's a big client like a PIMCO, you are told to promote the Franchise and get more deals/trades done so the bank can rise in the leaderboards. So what do you do? You win the trade by getting the spread even narrower. So not only are the talented traders on the other side, but you're giving them a discount on top of it.

Previously you made millions (pre 2005), and now you're struggling to make money. What do you do?

The industry has changed where the risk takers are no longer at the banks but the hedge funds. Hedge funds, esp after Madoff, etc., are so careful with their reputations. They often have very strict security. it takes just one Portfolio Manager committing fraud to bring down the entire fund's brand. Also, the top funds have very strict drawdown limits. Drawdown is peak to trough so you can be up 20%, then give back 8% (so you're still up 12%) and they will fire you.

Not only that, the culture at banks is so toxic. I can't even describe it in words. I've worked in research labs, tech companies, and so on. Whatever your worst picture of bank politics is, it's even worse. Seriously, I have yet to work in an industry that compares. Every millennial I know at a bank is miserable after a few years. Of my group of friends, 60-70% of my friends have left.

The hedge fund side and buyside tends to be far more "quirky" or cerebral. At my old fund, I could read a book and nobody would say anything. Your job is to learn about the world and trading/investing is inherently creative - you're trying to come up with a unique thesis relative to the world.

So a very roundabout way to answer your question. The industry is too diverse to group people into a 15% or 99% distribution. I would say, what would you do if you were a bank to survive - especially after you were used to a certain lifestyle. You might be more willing to embrace a "gray area." There are obviously some exceptions to the type of personalities at banks. I would say one is non-U.S. citizens. Buyside jobs are very volatile and smaller, so securing visas is far harder. Because of this , many non-U.S. citizens will stay at banks even though they don't fit the culture and would enjoy the buyside more IMO.

/r/investing Thread Parent