This article looks at some of the prominent funds in the quantitative investment world and examines their prop desk history. 

Once upon a time in the city, there was a promised land within banking… hidden away from the hubbub of the trading floor and with Chinese Walls you could see from space, the bank’s golden goose (the prop desk) printed money. Those lucky enough to join the prop desk were rewarded with risk measured in VAR, a balance sheet capable of running every flavour of strategy and holding period along with a vastly superior trading platform to the rest of the bank. 

Unfortunately, this Fairly tale came to an abrupt end when a band of crusaders named Dodd, Frank and Volcker slayed the Bank’s golden goose with their not-so-secret weapon, regulation, and generally made life inside banks a lot less fun. 

Joking aside, the banks' prop desks were an amazing training ground for aspiring Portfolio Managers and CTO’s. Every year a crop of graduates would follow a well-trodden path, learning their trade with the support and resources of a large organisation coupled with the excitement and learning of a small Hedge Fund. But where are they now? 

Lehman Brothers

The demise of Lehman Brothers in 2008 marked the end for bank prop desks but not the end for their quant investment prop team, N-Quant. During the acquisition by Barclays and Nomura, N-quant was split with a team, led by Gregoire Schneider joining Barclays and a team led by Steve Felderhof joining Nomura. The Nomura team focused more on algorithmic execution and central risk however the Barclays team were free to continue and grow their quantitative investment strategies. N-Quant thrived in Barclays and was one of the last to disband after Volcker kicked in. Backed by Barclays and Paloma Partners, N-Quant span out of Barclays to become Squarepoint Capital. 

Morgan Stanley 

Morgan Stanley was one of the first banks to embrace quantitative trading in the early 80’s with people like Robert Frey (Renaissance Technologies), David Shaw (D.E Shaw) forming the banks’ early prop desk alumni. Fast forward to 2012, two quant prop desk remained, PDT (Process Driven Trading) run by Peter Muller and ETL (Equity Trading Lab) run by Daniel Ewig, Peter Bolland and Peter Fanelli. The larger and more profitable group, PDT was spun out in 2013 and became PDT Partners. ETL shifted from a prop to a client focus however did continue to run “inventory management” strategies alongside the automated market making. When Peter Bolland decided to leave in 2017, ETL was wound down and the team disbanded with several ending up starting their own funds including Juhua Zhu with Aigen Investment Management. 

BNP Paribas & Societe Generale 

You couldn’t write about one without including the other. The names of the desks changed over time (SQS, AQS etc) however the recipe for success remained pretty constant – capture the best quants and engineers emerging from the French Grande Écoles. It worked incredibly well and produced many very high calibre teams that moved onto the buyside, most notably Latour Trading (incubated by Tower Research Capital) – a combination of Soc Gen and BNP quants led by David Faucon. Eased by a French interpretation of Volcker, BNP and Soc Gen continued their prop activities long after their US rivals so they never had a “spin out hedge fund” moment for their prop teams. 

Credit Suisse

GAT (Global Arbitrage Trading) was a hugely successful and profitable prop desk for CSFB (yes we went old school) led by Bob Jain. It was restructured after the 2008 crises and re-emerged as SMG (systematic market making group) with two, different (competing) desks led by Pierre-Yves Morlat (Pym) in Paris and Nick Branca in New York. The two desks were officially span out in 2018 with the team under Pym forming Qube Research and Technologies and Nicks team forming QT fund. Unfortunately QT fund was hit by this years vol and shut up shop in May 2020. 

Royal Bank of Canada

GAT (Global Arbitrage Trading) – yes, same name as the group at CSFB was led by Richard Tavoso and punched significantly above it’s weight in prop desk terms. GAT looked destined to make a smooth transition to a hedge fund in 2014 however last minute “complications” scuppered the deal leading to an exodus including the Head of Trading, Ed McBride (established Centiva Capital) and the Head of Quant Trading, Eric Tavel (established Masa Capital). 

Deutsche Bank 

DB had a large prop trading group headed by Ralph Reynolds and comprised of several different, competing trading teams. The most successful team to emerge from DB was the stat arb group headed by Jonathan Hiscock which left in 2005 to establish GSA Capital which in turn then produced another spin out, XTX Markets led by Alex Gerko. After Volcker, DB shuttered it’s prop desk resulting in teams being swept up by large multi-strats like Millennium. However, a team lead by Arvind Raghunathan did receive funding and established ROC capital. Unfortunately ROC failed to produce the same returns as it’s prop days and was shut down in 2013. 

Goldman Sachs

GS swung the axe on their prop desks pretty quickly after Volcker was passed moving a large chunk of their Principal Strategies Group into their asset management business GSAM. Several HFT teams remained within the franchise however improving internalisation and inventory management. The biggest name alumni of Goldman Sachs quant prop unit are Ewan Kirk and Erich Schlaikjer who founded Cantab Capital (Now GAM systematic) in 2006 and received funding from GS in 2013. 

Merrill Lynch 

We refer to Merrill Lynch, pre Bank of America, as post acquisition most of the prop desks were shut down and although Bank of America has some prop it was dwarfed by Merrill Lynch’s QSA desk. QSA was formed in 2004 when a team, led by Michael Botlo, joined Merrill Lynch from Morgan Stanley’s ETL. After the financial crises, the team decided to leave and, seeded by Schonfeld, formed Quantbot Technologies. 

UBS 

UBS are famous for their EVT (Electronic Volatility Trading) desk however they also had very strong Equity and FX prop trading desks. EVT was led by Haim Bodek from 2003 onwards and was a dominant force in vol trading. Haim left UBS in 2007 with a few colleagues to form Trading Machines which shut down some years later due to losses which Haim was able to prove were the result of undocumented order types from the BATs exchange. 

Summary 

We were unable to include every prop desk in this article due to poor memory and brevity. We do believe these desks offered a structured career path for many junior quants and engineers and it’s sad that these opportunities do not exist in banks anymore. For the moment this fairy tale did not have a happy ending however as with all great tales, they are surely due a reboot.