Which broker? The temptations of a fund manager

Thu Apr 1, 2010 9:31am EDT
 
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By Tom Bergin

LONDON (Reuters) - Fund group Gartmore's suspension of a top hedge fund manager on suspicion of directing trades to favored brokers shines a light on a murky business where tales of lavish hospitality, nepotism and kickbacks abound. On Tuesday, Gartmore said it had suspended Guillaume Rambourg pending the outcome of an internal investigation into whether he had breached internal procedures on directing trades.

The group's shares fell 30 percent even though Gartmore said clients had not suffered losses.

Details of Gartmore's inquiry have not been revealed, but brokers and traders in the City of London financial district believe the way fund managers decide which brokers to use for share trades is wide open to abuse.

"I have seen some people using just one broker," one trader said. "Some people are best mates, some people are receiving nice presents. People are human."

Other brokers say the matter goes beyond favoritism.

"You see patterns that don't make sense and you wonder 'Are people getting the big trades in return for a kickback'. Of course, you can't prove anything," one sales trader at a U.S. firm said.

Fund managers remunerate their brokers through commission on trades. The obvious choice of broker for a buyer or a seller would be the one offering the best improvement on the price being quoted by a stock exchange.

However, it is more complicated than that.   Continued...