Morgan Stanley hires a risk-taker

(breakingviews.com) -- Why is Morgan Stanley hiring a hedge fund manager to run its fixed income client trading business? After all, the Wall Street firm is supposed to have disavowed proprietary trading. So putting a risk-taker in charge looks odd. But bringing Jack DiMaio on board could be a smart move.

For starters, DiMaio was a seasoned sell-sider before he turned his hand to alternative investments. He spent 14 years at Credit Suisse First Boston (CSGN), rising to be head of the fixed income business that was so successful that in 2001 Barclays Capital boss Bob Diamond tried -- and almost succeeded -- in a mass hiring of DiMaio and 39 members of his team.

What's more, after almost six years in the hedge fund business, DiMaio knows what buy-siders want from their investment banks -- and he might be glad of a respite from what has been a tough environment for most hedge funds. The only question is how easily DiMaio will adapt to being a line manager again rather than the ultimate boss.

The switch should be made easier by his good working relationship with Morgan Stanley (MS, Fortune 500) chief John Mack -- forged after Mack took the reins at CSFB in 2001, even though one of his first tasks was to persuade scores of bankers, DiMaio included, to part with multi-year guaranteed bonuses.

That should give Mack comfort that he's got the right man for the job. And should Morgan Stanley ever restart risk-taking, DiMaio would be an obvious asset.