Volcker Rule Driving Talent to Hedge Funds: Stern

When JP Morgan’s London Whale blew up, one part of the collateral damage was the publication of a detailed Volcker Rule. The Whale was gambling JP Morgan’s money, and wasn’t doing so on behalf of clients — yet somehow his actions were Volcker-compliant. And when the blow-up revealed the absurdity of that particular loophole, the rule went back to the SEC for further refinement.

In a special conference call this evening Jamie Dimon, CEO of JPMorgan disclosed a "trading loss" of at least $2 billion from a failed hedging strategy. The strategy "morphed over time" and it was "ineffective, poorly monitored, poorly constructed and all of that," said Dimon. Last month, Dimon he denied there were any problems, most likely hoping they would go away or he could cover them up. Instead, Dimon went to the confessional.

How do you value a hedge fund? It’s impossible, really. You can see how much it earned in any given year, but past performance is a very bad guide to future results. In any case, all future income is reliant on both the investors and the managers sticking around, which means that the value of a hedge fund to its managers is always going to be higher than the value of a hedge fund to an outside investor with little ability to keep the managers in place.

Zacks.com submits: On Monday, the Financial Times reported that JPMorgan Chase & Co (JPM) is undergoing preliminary negotiations to acquire a large Brazilian investment and hedge fund with Gávea Investimentos.