The hedge fund sector's worldwide headcount could shrink by 20,000 jobs or 14 percent in 2009, according to a new forecast by Options Group, a recruiting and strategic consulting firm focused on the financial services industry.
Hardest hit are sales and investor relations staff, followed by back-office operations staff and traders, Options Group says. Forecast job losses will be greatest in the New York area and London, followed by Hong Kong and Tokyo.
"It's across the board," Options Group Chief Executive Michael Karp told Reuters. "Funds are looking to lay off people who are not revenue generators, the people whose ideas are not generating alpha."
Investors continue withdrawing money from hedge funds, further depleting assets already compressed by market losses. Since a portion of fund fees are based on the amount of assets under management, revenue at most firms is falling in tandem with assets. That's what happened last year, when hundreds of funds shut down and industry employment shrank by 6.4 percent or about 10,000 jobs, to 145,000, according to Options Group.
But another hedge-fund watcher cautions it's difficult to extrapolate from data on assets under management to predict changes in fee income or headcount. "It's very much back-of-the-envelope kind of math," says Neil Wilson, editorial director of Hedge Fund Intelligence, a firm that compiles news and data on the global hedge fund industry.
Funds that generate positive returns, which roughly a third of the industry did last year according to Wilson, earn extra fees for performance. So while worldwide hedge fund assets dropped 32 percent last year to $1.81 trillion, according to Hedge Fund Intelligence data, Wilson says industry-wide fee income might have declined more than 30 percent, or less than that.
Wilson also says direct employment at hedge funds probably is greater than 145,000, and indirect employment - via prime brokers and other outsourced services - accounts for still more jobs dependent on hedge fund business. And 20 percent of the industry's remaining assets are slated to be withdrawn by investors this year, he adds.
All of that suggests Options Group's forecast of 20,000 job losses this year or 14 percent of headcount is, if anything, conservative.