Prop shops and external parties
Do prop shops hire or allocate capital to external groups, such as small hedge funds or other smaller prop shops/trading teams? Would they buy them out or bring them in house? Would they just make an external investment in the group?
I don't have first hand knowledge, but logically, I don't see why they'd make an investment in another hedge fund/shop. That's like admitting the other shop can do a better job with their money than they themselves can.
Buyouts, I definitely have heard of before
Typically they wouldn't. Prop shops pride themselves on, well, "proprietary trading". The name implies that they do most investments themselves
if there is a prop shop that would like to take a team of traders (and effectively their strategy), it would be cheaper to allocate than to buy them out as a team. No baggage of employment etc. In regards to hedge funds allocating, sometimes the strategies are at capacity and the firm has extra cash. They want to invest it, so they allocate to another group that has capacity and steady returns etc. (dont see why every multi-strat wouldnt do this). admitting that one strategy is better than another... if the dude down the block from me is returning 20% and im making only 10%, i would want to do one of four things (not in any specific order): A) give him some of my money to run B) somehow buy/copy his strategy (unless it will get arbed out or something) C) find another bag of tricks D) punch him in the face...
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