Two weeks ago, we listed managing distressed assets among our picks for this year's 10 safest Wall Street jobs. That prompted an eFinancialCareers user to comment that hedge funds specializing in distressed assets "are all in lockdown having experienced substantial losses (at) the end of 2008 and are being redeemed."
He's got a point, but one that represents just part of the picture. Many distressed funds indeed have run into trouble, with predictable consequences for their staffs. A case in point is Citigroup's Corporate Special Opportunities fund. It began liquidating in November and is repaying investors just three cents of each dollar they put in. Another is Sun Capital Partners' surprise layoff of 23 people during the first week of January. Sun Capital, a distress-focused private equity firm based in Boca Raton, Fla., had been adding staff just a month earlier, according to the trade publication peHUB. Numerous similar incidents could be cited.
But even while some distressed investing firms shrink or disappear, others are expanding. It's all part of the process of creative destruction. A search of eFC job postings Thursday found 24 that contain the word, "distressed." More postings mention distressed than mention MBS (21), long-short (18), oil (17), high-yield (16) or investment grade (10).
Anecdotal Signs of Demand
On the news side, my sources consistently report demand for talent in the distressed space. And there's plenty of external confirmation.
Early this month, hedge fund recruiter Sandy Gross told eFinancialCareers News her clients are hiring in anticipation that distressed credit will produce solid returns as the economy slowly recoups. "Being able to uncover distressed assets, de-construct them, value them and repackage will be in demand," observes Gross, managing partner of Pinetum Partners.
Roy Cohen, a career coach whose clients include financial professionals, says banks and other lenders need professionals with experience working out troubled loans. He also says distressed hedge funds will become increasingly common. And other hedge funds will need professionals to advise them on pricing distressed assets when the funds re-value their portfolios.
Jay Gaines, chief executive of executive search firm Jay Gaines & Co., told us last week, "We're hearing the phrase, 'distressed assets,' a lot. So I think that will become a (desirable) specialty area for some time to come." Gaines believes Citigroup's plan to split off troubled assets into a "bad bank" could create sizable demand for managers of distressed assets and portfolios - in Citi and successor companies, and in investment firms that might eventually buy some of Citi's bad assets.
A survey of private equity fund investors by Probitas Partners in late November and early December found distressed debt was the single most popular asset class out of 17 on the list. Forty-one percent of institutions with capital in private equity funds said they plan to invest in distressed debt. So, even as investors pull out of some distressed funds, other such funds are poised to see new money flow in.
Randy Smith, who started his first distressed investing business in 1984, started a new global distressed opportunities fund in November through his family vehicle, Alden Global Management. That fund reportedly began with $400 million (nearly all proprietary) and achieved a 32.3 percent return in its first two months of trading.
What is Safe?
To be sure, "creative destruction" is hardly synonymous with safety. That does point up a possible flaw in our "2009's 10 Safest Wall Street Jobs" formulation. When soliciting sources' views, we specifically asked for jobs they viewed as safest - not necessarily the most promising ones. Inevitably, however, many responses seemed to emphasize roles for which the speaker envisioned strong employer demand, a promising future, good growth prospects, and the like - rather than job security per se.
In fact, when ranking different jobs, there may be an inevitable tension between growth and security. Maybe I'm just obsessed with portfolio analogies...but I can't help equating growth professions with growth stocks, and secure professions with value stocks. "Hot" jobs - those experiencing rapid demand growth - tend to offer bigger expected returns (higher pay) along with more volatility (risk of job loss) - just as growth stocks do. Secure jobs, meanwhile, occupy the "value" side of the style box. They promise relatively low but consistent returns (compensation) with little growth potential, and correspondingly little risk the job will disappear.