Hedge Funds May Cut 20,000 Jobs as Losses Erode Fees

Date: Tuesday, March 10, 2009
Author: Katherine Burton and Saijel Kishan, Bloomberg

Hedge funds may cut 20,000 workers worldwide this year, a record 14 percent of the industry’s jobs, as investment losses and client withdrawals erode fees.

The dismissals will come on top of the 10,000 jobs that disappeared last year at the investment partnerships, according to estimates by New York-based Options Group, an executive-search firm. Employment peaked at 155,000 in 2007, and has since dropped to about 145,000, the firm said.

“Hiring activity is much reduced and it’s going to get worse,” said Hank Higdon, managing partner at Higdon Partners LLC, a New York-based search firm focused on financial services. “I don’t see markets improving at all.”

About 920 hedge funds, or 12 percent, closed last year, according to data compiled by Chicago-based Hedge Fund Research Inc. Of the 6,800 single-manager funds that remain, 70 percent lost money in 2008, meaning they can’t resume collecting performance fees until the losses are recouped. Those fees, generally 20 percent of investment profits, are the primary source of cash used to pay bonuses.

Hedge funds fell an average of 0.51 percent in February and 0.59 percent so far this year, less than the declines in stocks and bonds, according to HFR. HFR’s Fund Weighted Composite Index dropped 19 percent last year, the biggest decline since the Chicago-based firm began tracking data in 1990.

Job Losses

Hedge funds eliminated about 6.5 percent of jobs last year, when client assets fell 37 percent to $1.2 trillion from their peak in June, according to Hedge Fund Research. Banks and brokers have fired more than 272,450 workers, or 5.9 percent of their payrolls, since mid-2007, according to data compiled by Bloomberg.

Hedge-fund assets may fall an additional $250 billion, or 21 percent, this year, estimates Huw van Steenis, a financial- services analyst at Morgan Stanley in London. That would leave hedge funds, which cater to wealthy individuals and institutions, overseeing about $950 billion, the lowest since 2004.

Last year, Citadel Investment Group LLC, the Chicago-based firm run by Kenneth Griffin, cut about 150 people, or 11 percent of its workforce, as it exited investment areas including emerging markets and reinsurance. Griffin, 40, still employs 1,200 people at the firm, which manages $12 billion, and is hiring in its market-making business. The firm’s biggest funds lost about 55 percent in 2008.

Steve Cohen

Steve Cohen’s SAC Capital Advisors LP, based in Stamford, Connecticut, cut 100 people, or 13 percent of its staff. The reductions included fixed-income traders as Cohen, 52, scaled back bond investing in favor of trading stocks. He manages $12 billion.

There are some pockets of hiring, recruiters said.

Higdon Partners this year helped Breeden Capital Management LLC find a portfolio manager in London for its European stock fund. The Greenwich, Connecticut-based firm is run by Richard Breeden, former head of the U.S. Securities and Exchange Commission. Higdon also worked with New York-based Cantillon Capital Management LLC, founded by William von Mueffling, to hire a sales and marketing executive.

“Some funds are looking for investment people, maybe better analysts or portfolio managers,” said Higdon. There’s also a limited demand for distressed-debt managers, risk specialists, and marketing and sales people to help replace assets that were lost last year.

High-Frequency Trading

Several hedge funds are also looking for “high-frequency” traders, according to Brian Grover, founder of New York-based recruiting firm Broadreach Group.

High-frequency trading uses computer programs to buy and sell securities for time periods as short as 10 minutes. In volatile markets, such dealing can be profitable. Misha Malyshev, who was head of high-frequency trading at Citadel, quit last month after he helped generate returns of 40 percent in 2008.

Hedge funds are also taking a longer time to fill the few positions they have, recruiters said.

“The hiring process is turning back to the 1990s, when candidates had 15 to 30 interviews before being hired,” said Michael Karp, chief executive officer of Options Group.

To contact the reporters on this story: Katherine Burton in New York at kburton@bloomberg.net; Saijel Kishan in New York at skishan@bloomberg.net