Deals

Goldman prop-trading team heads to KKR

A group of nine traders, led by Bob Howard, will join KKR in New York, setting the stage for the alternative investment giant to build a major hedge fund operation.

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Kohlberg Kravis Roberts is hiring nine professionals away from Goldman Sachs’ proprietary trading team, a source confirmed today.

The move is significant for both firms. Goldman Sachs’s proprietary trading operations accounts for roughly 10 percent of the bank’s revenue, or $4.5 billion of its 2009 revenues. For New York-based KKR, the hirings set the stage for KKR to expand into a major asset class – public securities.

The team of nine is led by Bob Howard, who leads Goldman’s US principal strategies group. Goldman has been under pressure to unwind its proprietary trading operations amid new US bank regulations that clamp down on balance-sheet risk.

Howard and team will join KKR in January. They will report to William Sonneborn, who leads KKR’s $13 billion asset management division. Sonneborn joined the firm in 2008 from TCW Group, where he was president and chief operating officer. Upon joining KKR, the trading professionals will play risk management, trading and research roles, mostly focused on credit strategies. There are no imminent plans to raise a fund, the source said, adding that once the group is established, third-party capital will likely be raised for a public equities trading business.

The Goldman prop-trading team was widely courted, according to reports, including by distressed investment firm Avenue Capital. And investment bank Perella Weinberg.

Over the past five years, KKR has expanded aggressively from a firm that mostly pursued buyouts to a multi-division financial services conglomerate. The firm has recently added infrastructure investing and capital markets advisory businesses. Its relentless efforts to become a publicly listed business led the firm to finally become traded on the New York Stock Exchange earlier this year following an earlier listing on the Euronext.

In a statement, a Goldman Sachs spokesperson said: “Over several decades, Principal Strategies has been a successful global investing business with a strong performance record and a culture of disciplined risk management. We wish Bob Howard and his team every success in their new home.”