UPDATE 4-Goldman proprietary traders jump to KKR

* KKR hires Bob Howard, other prop traders in New York

* KKR plans to build out asset management platform

* Likely to launch long-short hedge fund next year-source

* Traders left Goldman after new regulations on trading
(Adds details on others in Principal Strategies Group)

By Steve Eder and Megan Davies

NEW YORK, Oct 21 (BestGrowthStock) – Kohlberg Kravis & Roberts
(KKR.N: ) is hiring nine members of Goldman Sachs Group Inc’s
(GS.N: ) proprietary trading team, in the latest sign of private
equity firms widening their business beyond pure leveraged
buyouts.

Goldman’s proprietary trading desk is being shut down in
light of the “Volcker rule,” which limits the extent to which
banks can bet with their own capital.

The exodus of traders gives KKR an opportunity to expand
its business areas further, moving into the potentially
lucrative long/short hedge fund space.

In a sign of their appeal, the Goldman traders had been in
talks with a number of investment firms such as Perella
Weinberg and Blackrock Inc (BLK.N: ) before settling on KKR,
sources previously said.

KKR is hiring a group of Goldman traders led by Bob Howard,
who heads Principal Strategies for Goldman’s U.S. business. The
Goldman team, which makes bets on stocks rising or falling,
will be part of KKR’s asset management unit that manages $13
billion, and will join early in 2011.

KKR is likely to launch a long/short hedge fund next year,
a source familiar with the situation said.

KKR co-founders Henry Kravis and George Roberts said in an
emailed statement that the move is part of a strategic
build-out of its asset management platform.

“Our goal has been to add new capabilities and exceptional
talent that allow us to strengthen our product offering and
better service our clients,” they said. “Bob and his team will
be an ideal fit for that objective as we’ve been impressed with
their investment experience and performance as well as their
ability to manage risk.”

KKR’s shares were up 2.9 percent at $11.70 while Goldman
Sachs’ shares were down 4 cents at $159.56.

Private equity firms have been expanding from their
traditional bread and butter business of striking leveraged
buyout deals in recent years, as the industry matures.

Blackstone bought credit business GSO Capital in 2008 and
took over management of nine leveraged loan and high-yield bond
funds from Allied Capital Corp (AFC.N: ) earlier in 2010.

PROPRIETARY TRADING

Goldman, in a statement, lauded the “strong performance
record with a culture of disciplined risk management” of its
former Principal Strategies business.

Goldman had been expected for months to wind down the unit
in light of the sweeping U.S. financial regulatory reform
package, which imposed limits on how much firms can bet with
their own money.

The unit had as many as 70 employees across the world.
Employees in Asia were reportedly considering a plan to start
their own hedge fund. Employees in London were said to be
considering other options.

Goldman has said proprietary trading accounts for as much
as 10 percent of its revenue, which was $45 billion in 2009.

Morgan Stanley (MS.N: ) (Read more about the money market today. ) on Wednesday said it was
restructuring its ownership of FrontPoint Partners, but will
retain a minority stake in the hedge fund unit.

JPMorgan is reassigning its proprietary traders to its
asset management unit.

A Credit Suisse (CSGN.VX: ) commodity trader departed with a
team of proprietary traders last month to set up their own
hedge fund, also as a result of the impending rules. Bank of
America Corp (BAC.N: ) also cut up to 30 employees who traded for
the bank’s account.
(Reporting by Steve Eder and Megan Davies; editing by John
Wallace, Dave Zimmerman and Bernard Orr)

UPDATE 4-Goldman proprietary traders jump to KKR