UBS Hedge Fund Unit Hurts Profits

After missing the mark on projected profits, UBS last week announced plans to move its hedge fund operations under the aegis of the investment banking division, according to Business Week.  That’s because the 7% slump in year-to-date profits for the quarter ending March 31 is due, in large part, to big losses at the company’s hedge fund division, run by Dillon Read Capital Management. The unit was heavily invested in mortgage products. “Operating a proprietary trading platform outside the investment bank and managing client money alongside it became too complex and expensive,” said John Fraser, chief executive of UBS Global Asset Management. As a result, the operations will be pulled into the global asset management group. Dillon Read will continue operating the fund until the transition is complete, which is expected to be in the third quarter this year. UBS stock rose 3.4% to $63.20 per share on news of the reorganization.  Analysts noted that other units within the bank were performing well, and expected the company to recover from its profit setback quickly. “While the [Dillon Read Capital Management] u-turn is clearly an embarrassment, we believe the u-turn is to be welcomed while the solid results elsewhere are a relief, given the cost concerns,” said Matthew Clark, an analyst with Keefe, Bruyette & Woods in a note. The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.