Hedge Funds May Cut 10,000 Jobs, Options Group Says
By Saijel Kishan
Oct. 16 (Bloomberg) -- Hedge funds may cut as many as 10,000 jobs this year as they struggle with their biggest losses in almost two decades, according to estimates by executive search firm Options Group.
The industry has already eliminated 3,000 to 5,000 jobs, out of an estimated 150,000 worldwide, Michael Karp, chief executive officer of the New York-based firm, said today in an interview. Layoffs may double by the end of 2008, he said.
``It's bad out there,'' said Karp, whose firm has tracked hedge-fund hiring since 1995. ``Generating returns is not easy at the moment and as funds look to cut costs, the best way is to let go of people.''
Hedge funds, lightly regulated private pools of capital, have lost an average of 17 percent this year as the subprime- mortgage meltdown ignited a global financial crisis, according to data compiled by Chicago-based Hedge Fund Research Inc. The losses mean many firms can't collect performance fees, usually 20 percent of investment gains, while management fees, typically 2 percent of assets, have declined.
Since 1990, when Hedge Fund Research began tracking the data, firms have had one losing year, a 1.45 percent decline in 2002.
Investors withdrew a record $43 billion from hedge funds last month, according to TrimTabs Investment Research, the most since the Sausalito, California-based firm started tracking the industry in 2000.
Hedge fund Ramius LLC this week laid off about 40 of its 200 workers, while Perry Capital LLC cut more than 20 jobs, or less than 20 percent of the total, according to people familiar with the New York-based firms.
Worst Year
``This is the worst year for headcount reduction for hedge funds that I have seen,'' said Frank Carr, managing partner at Centennial Advisory Group LLC, a Stamford, Connecticut-based executive-search firm, which has placed candidates in hedge funds since 1997. ``I expect the job losses to drag out longer than in 1998 given what's happening in the markets at the moment.''
The Russian debt crisis 10 years ago led to the near- collapse of Long-Term Capital Management LP. Markets recovered after a 16 percent decline in the Standard & Poor's 500 Index in July and August of that year.
Layoffs among hedge funds are dwarfed by those made by the world's biggest banks and securities firms, which have cut 131,766 jobs since July last year following credit losses and writedowns, according to data compiled by Bloomberg from company filings and statements.
No Federal Help
``You can make the argument that it could be worse than Wall Street because no one is coming in to save the hedge funds'' as governments are doing with banks, said Hank Higdon, managing partner at Higdon Partners LLC, a New York-based search firm specializing in financial-services companies.
U.S. Treasury Secretary Henry Paulson said his plan to inject capital into financial companies is focused on banks and thrifts, indicating unregulated firms such as hedge funds won't initially get government aid.
``We're focused on financial institutions, regulated financial institutions,'' Paulson said today in an interview with Bloomberg Television.
Ramius, founded by former Shearson Lehman Brothers Chairman Peter Cohen, dismissed some of its staff after its offshore multistrategy fund lost as much as 11 percent this year through September. Kara Findlay, a Ramius spokeswoman, declined to comment.
`Rethinking'
Perry, whose flagship fund has fallen 8.5 percent this year through September, has fired portfolio managers, analysts and traders in its equity unit as the firm reduces investments in global equity markets. Perry, which manages $11 billion, hasn't had an annual loss.
``The traditional long/short equity model is undergoing rethinking,'' Perry said in an e-mailed statement. Long/short firms bet on rising and falling stock prices.
``The firm remains a special-situation equity investor, but it sees unprecedented opportunity in the global credit markets that requires fewer equity professionals.''
Fund closures have added to the tally of unemployed. Ospraie Management LLC, Drake Management LLC and Sunova Capital LP are among the firms that shuttered funds this year. Several hundred firms may go out of business between now and the end of 2008, said Higdon.
``Five percent of firms will be hiring, 20 percent will be gone and the rest will be sitting on their hands waiting for the storm to pass,'' he said.
There were about 3,100 hedge fund firms as of June 30, according to Hedge Fund Research.
Resumes Arriving
``We're not yet seeing a wholesale slaughter at our clients,'' said Joshua Levkov, managing director at New York- based Grady Levkov & Co., an executive-search firm whose clients include hedge funds. ``But as more funds lose money, it's inevitable that we will see more layoffs in these markets.''
Karp, of Options Group, said his firm was receiving about 20 to 30 resumes a day from hedge-fund employees, 50 percent more than a year ago.
``While there are interviews going on all the time, there are not many offers,'' he said. ``Many of these resumes are of talented people who will end up restarting their careers at other mid-market banks and new start-up initiatives of foreign banks.''
Bonuses to Shrink
Portfolio managers earn an average base salary of $150,000 annually and bonuses can be up to 20 times as much depending on profits, according to his firm. While base salaries are little changed amid the market turmoil, Karp expects bonuses to drop significantly.
Most of the job losses are being made by long/short equity funds, while global macro funds are selectively hiring, said Centennial's Carr.
Equity hedge funds have lost 15 percent on average this year, according to Hedge Fund Research, while macro funds, which seek to profit from broad economic trends by trading stocks, bonds, currencies and commodities, have returned 3.3 percent.
To contact the reporter on this story: Saijel Kishan in New York at skishan@bloomberg.net
Last Updated: October 16, 2008 17:19 EDT |
