Former JP Morgan Chase fund trio make £55m

They are the most profitable example of a common trend of the past two years: traders leaving banking jobs to set up currency and fixed-income hedge funds.

Reports of such stellar returns make it harder for banks to keep hold of their proprietary traders, who are increasingly leaving banks’ trading desks for the lucrative world of hedge fund management.

LDFM started with $1 billion under management, much of which came from JP Morgan Chase, where the directors managed the fund in-house before it was spun-off in 2002.

About 85% of hedge funds start out in this manner, estimated one trading manager at a bank in London. But the growing popularity of currency hedge funds means it is becoming more of a problem for banks’ prop foreign exchange desks.

Putting capital into a hedge fund set up by departing staff is one way that banks are dealing with this problem: by doing so, they are effectively outsourcing their prop desk -- and risk - to an external group. But banks may also have to start considering a return to the traditional pay structure for prop traders - a 10% share of their takings - rather than paying guaranteed bonuses to combat the lure of the buy side, said one ex-trader in London.