Cancel the private plane to St. Bart's this winter and take the long way around the Ferrari lot on your way to the bank: This year's bonus could be the best you'll see for awhile.
Indications that the U.S. economy is slowing, paired with continued cost-cutting by financial services firms, are already souring next year's prospects for all but the highest performers-and those in the right jobs at the right time.
'The U.S. economy is losing momentum as 2004 comes to a close,' says Frank Fernandez, the chief economist for the Securities Industry Association, in a recent report. 'Growth is expected to be slower next year as fiscal stimulus fades, along with positive wealth effects from appreciation of housing and financial assets.'
Fernandez predicts that real GDP will decline from 4.4% in 2004 to 2.6% in 2005. Business investment, he says, is already slowing as CEOs and CFOs react to forecasts of 7-8% earnings growth by reigning in spending. The pullback is a harbinger of trouble for the securities industry.
'The primary side of our business, the issuance activity, is a direct reflection of business investment,' says Fernandez, pointing to the huge capital in-flow to businesses that fed the late 1990s boom.
And the job-market winners are...
Where hiring and retention are concerned, certain sectors are expected to suffer less than others in a flat economic landscape or downturn.
Michael Flood, managing partner of retained financial search firm Westwood Partners, says, 'The areas we'll continue to see growth in are prop trading, any sort of structured derivative professional, particularly those with experience structuring product for retail, and anybody who is a senior-level professional at the nexus of trading and technology,' such as algorithmic trading and electronic trading. 'People who have a leg in both worlds and are good can essentially write their own ticket,' says Flood.
Asset-backed securities, however, which have up to now benefited from a low-interest rate environment, may take a hit. But as the market turns down, 'the vultures come out,' says Gary Goldstein, chief executive of The Whitney Group, a financial search firm. 'Job opportunities will be mostly on the distressed side.'
As traders, including hedge funds, chase high-volatility markets, commodities and currencies will continue to boom at least until prices stabilize in one direction. Commodities and currency traders, researchers, and originators will be in demand, says Goldstein.
And for at least the near term, job opportunities will be plentiful at hedge funds themselves, even as many smaller ones struggle to stay above their high-water marks in a low-volatility market. One up-and-coming niche, says Fernandez, could be Islamic hedge funds targeting the $50-$70 billion windfall reaped by oil producers in the wake of higher oil prices. Under Islamic law, Fernandez says, 'earning of interest is considered usury, so you can't put a conservative Muslim into a bond fund.'
M&A gathers steam; buyside stays strong
M&A may be in for a bit of renaissance. 'Business leaders are shedding non-core assets,' Goldstein says. 'M&A will be more attractive, and as a result, firms will be beefing up their M&A departments.' Industrial, consumer, retail, and healthcare will see some activity, says Goldstein, while technology will continue to run flat for now. He also sees a need for bankers who can take public companies-fed up with onerous Sarbanes-Oxley burdens-back to private again.
Recruiter Richard Risch, CEO of financial services recruiter The Risch Group, doesn't believe an M&A resurgence will have much effect on hiring. 'From my perspective as a recruiter, it just seems to me that the number of professionals out there in the M&A sector still outstretch demand,' he says. Risch sees activity in 'anything on the buyside-private banking, wealth management, institutional asset management, both on the investment side as well as on the market side.'
'The buyside is somewhat impervious to whether the economy is slowing down slightly or not,' agrees Michael Flood of Westwood Partners, who foresees 'steady hiring of portfolio managers, analysts and senior level marketers.'
A high-yield chill in the air
Though high-yield is hot now, some, including the SIA's economist, predict it will begin to cool. Banks with big bond practices, like Lehman Brothers and CSFB, may take a hit to the coffer-while bond hiring hits the doldrums. Already, many firms are sensing that they're riding the crest of the high-yield wave.
'Typically you don't have a run longer than two to three years, and we're starting the third year,' says a recruiter at Spencer Stuart. If the mix of work shifts as predicted toward less-profitable A-rated bonds, don't expect to read about it in the help-wanteds.
'Investment grade work is less specialized,' says the Spencer Stuart recruiter. 'There's not really a premium for those types of people.'
Those who work in equity capital markets-or want to-had better run low and fast to the ground.
While equity derivatives is expected to be strong, 'I don't see the cash equity business coming back yet,' says Whitney Group's Goldstein.
'Where we're not going to see high demand is for equity research analysts and research sales people,' says Flood of Westwood Partners. 'It's not that there won't be movement and opportunities, but demand will be limited and specific.'
Goldstein expects equity research demand to be limited to 'areas that are complex and require a third party explaining the product.' These include biotech, some facets of technology, and perhaps medtech, he says.
Stock trading commissions, already razor thin, aren't expected to recover anytime soon as long as the market keeps trading in a narrow range on declining volatility.
Of course, if you're good at what you do-really, really good-none of this will matter. Says recruiter Flood, 'There will always be a market for top decile people'-the top ten percent, that is-'regardless of function. Even if you're in research sales, which is a function with diminishing importance in the business, there's no doubt that there will be job liquidity for you if you so choose.'