Hotshot Traders Leave Wall Street

The jockeying intensified after the Senate, as part of financial-overhaul legislation it passed last month, included a provision expected to curtail banks' trading and other risk-taking activities. One countervailing trend keeping traders in place: The fund-raising environment for new hedge funds remains tough, especially with recent market volatility.

Blackstone Group, which long has backed hedge funds through its fund-of-funds business, is now raising a second, bigger "seeder" fund so it can dole out more money to proprietary traders and other investment pros spinning out of Wall Street to start hedge funds, say people close to the matter.

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Broadly, the rule, named for former Federal Reserve Chairman Paul Volcker, aims to curb banks' risk-taking by limiting their use of capital in trading and constraining their ownership of hedge and private-equity funds.