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In November, Hedge Fund Hiring Reaches Lowest Level for 2011

Date: Friday, December 16, 2011
Author: HFObserver

Q4 Hedgehunting Worst Quarter of the Year

The number of hedge fund/alternative investment firm professionals hired in November fell a staggering 50% compared to October as hiring hit the slowest pace yet this year.

The drop was driven in large part by seasonal factors but was exacerbated by poor year-to-date performance by most funds.

Meanwhile, failure to win performance fees in 2011 threatens many funds with voluntary departures, layoffs, and downsizing. The Dow Jones Credit Suisse Core Hedge Fund Index was down 0.95% in November and down 7.03% for the year.

Year-end quarters are frequently the slowest period for hiring, but recruitment in the hedge/fund alternatives industry has been weak for most the last six months, following a strong start to the year. Data is based on publicly available reported hires of hedge fund/alternatives professionals.

Nearly 60% of alternative investment hires reported in November were for Operations/Infrastructure roles, as firms rounded out teams with key operating hires. For all other months of the year, front-office roles (investment professionals, marketers, and traders) dominated overall hiring. Larger investment firms hired the most, filling positions in offices around the world.

With flat or negative year-to-date performance, the majority of hedge funds are still under their high-water marks, or the level of returns at which performance fees are paid. Employee bonuses are also typically paid from such fees. According to Hedge Fund Research, Inc., at the end of Q3, only 19.3% of all hedge funds were above their high-water marks for 2011. Furthermore, about
half of all hedge funds were below their high-water marks to start the year, meaning that many funds now face two consecutive years without winning performance fees.

Larger firms don’t rely as much on performance fees; they pay bonuses out of management fees earned on assets under management. However, many smaller funds cannot survive consecutive down years, as employees will quit in order to seek
meaningful bonus payments with competitors.

HFObserver predicts a difficult job market as 2011 comes to a close, with a significant number of small funds closing as well as layoffs throughout the industry. HFObserver expects no increase in hiring rates, except among the few firms that have performed well, recently funded start-ups, and investment management firms looking to broaden their product offerings. We also expect a pick-up in hiring by endowments, foundations and some traditional asset management firms looking to add strong hedge fund talent to their teams, as they did in 2008-2009.