Our Take: Look Beyond Wall Street

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For the most part, bulge-bracket banks continue to retrench. But opportunities exist, for candidates willing to look beyond the big investment banks.

A new survey of Wall Street headhunters reaffirms the bleak financial job market picture that's hogged the headlines for many months. The survey by the smart cube, a London-based research firm, found expected compensation for new hires is shrinking, signing bonuses are endangered, more employees are afraid to jump ship, and firms are taking much longer to make hiring decisions. Perhaps most ominous of all, the smart cube said, "Recruiters couldn't identify job functions they believe are relatively secure."

In keeping with our preference for lighting a candle over cursing the darkness, we outline some areas within the financial markets where new jobs are springing up. These and other growth segments help explain why U.S. government figures show payroll employment in securities and related activities remains near a peak even after Wall Street's repeated waves of layoff announcements.

Hedge Fund Sales and Support Roles

Hedge funds continue to build assets and headcount. As the sector matures, fund groups are upgrading sales and service infrastructures to accommodate an increasingly institutional client base. They're adding investor relations pros, fund accountants and performance analysts, and writers to respond to RFPs (request-for-proposals) and produce commentaries and other marketing collateral. The demand dwarfs the supply of candidates with hedge fund experience. So the door is open for those who've performed similar work for institutional asset managers, including the buy-side arms of investment banks.

Distressed Asset Investing and Trading

The swelling pool of hedge and private equity funds that have sprung up to invest in companies going through bankruptcies or restructurings need professionals who know how to make money picking distressed securities. Lately, the distressed-assets market has emerged as one of the hottest places to be, for both buy-side and sell-side traders.

Trading distressed corporate loans or bonds requires analyzing not just financial ratios, but various contractual documents that determine who owns what when a troubled firm is liquidated. So the skill-set differs somewhat from conventional fixed-income investing.

Along with distressed corporate securities, the market for troubled mortgage bonds and derivatives is attracting interest from well-known vulture investors. At the same time, major banks and focused real estate lenders are scrambling to unload multi-billion dollar portfolios of loans and related assets. BlackRock's $15 billion purchase of discounted mortgage securities from UBS last month probably is a sign of things to come. So, after being devastated by the sub-prime disaster, demand for mortgage analysis and trading skills appears to be creeping back into the market.

New Money Market Instruments

As the procedure for setting the daily Libor rate has come under a cloud, both existing and new alternatives to that long-dominant bank funding rate are gaining ground. For instance, while April trade volume in U.S. Libor-based Eurodollar futures contracts dropped 7.5 percent from March, fed funds futures trading surged 55 percent in the same period.

In European funding markets, Barclays Capital recently advised participants to use the European Overnight Index Average (widely known as Eonia) in place of Libor. A newly launched futures contract based on Eonia, the European equivalent of the U.S. federal funds rate, will begin trading June 16 on Liffe, the global derivatives market owned by NYSE Euronext. The exchange announced Thursday dealer firms have committed to make markets for one-month and three-month Eonia contracts, and said that hedge funds, banks and other participants expressed strong interest. Liffe also is preparing to launch similar contracts based on the sterling interbank average rate, known as Sonia.

Meanwhile, Icap, one of the world's largest inter-dealer brokers, is soliciting banks to participate in an anonymous daily survey in order to introduce an entirely new interbank rate benchmark called the New York Funding Rate, or NYFR.

Opportunities also are rising from the rubble of the auction-rate securities market - another widely used short-term funding vehicle damaged by the credit crunch. In March, Restricted Stock Partners began trading auction-rate securities on its Restricted Securities Trading Network, a three-year old electronic trading platform designed to match buyers and sellers of illiquid assets. More recently, the Chicago-based fund manager Nuveen moved to create a new type of variable-rate debt instrument that could replace auction-rate securities.

New investment themes, new markets, new products - all add up to new job opportunities for nimble candidates.

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