European convertibles hiring has fallen off a cliff
A year is a long time in the world of convertible bonds.
It's safe to say that 2009 was good, with a healthy level of new issuance and, according a new research note from JP Morgan analysts, a "sharp recovery in the asset class' pricing lending to mark-to-market gains on the portfolio management book".
A number of banks were looking to build their desks as a result.
This year, in Europe at least, year-to-date convertible bond issuance is fairly diminutive. Deal values total just $11.4bn so far in 2010, according to figures from Dealogic, compared to $22.2bn at this point in 2009.
Hiring has also dropped off. "Convertibles was always a small part of our business, and was driven by client demand," says Colin Smith, who specialises in equity derivatives at Alpha Executive Search. "The fact that we've seen nor heard of any demand for convertibles professionals this year is indicative of the state of the market."
Even if banks wanted to recruit, they may struggle to find a decent supply of talent. Smith points to a "net outflow" of people from the sector in recent years, a sentiment echoed by Jason Kennedy, director of headhunters Kennedy Associates.
"The problem is that the convertibles market oscillates so much - two good years, are invariably followed by two bad years - and this makes it difficult for banks to justify the cost of building out a significantly-sized desk. And, because of these shaky employment prospects, a large number of people have left the sector," he says.
Recruitment has not been entirely barren. Liberum Capital, for instance, hired Simon Smith, Peter Turner and Richard Tomblin for its new convertibles desk this year. Daiwa Capital Markets also entered the convertibles space through its acquisition of KBC's business in July.
The importance of establishing a US presence
EMEA accounts for just 20% of global convertible issuance, and the US is by far the largest market with 43% of YTD deals, according to Dealogic.
JP Morgan remains bullish on convertibles and is anticipating a 15% increase in underwriting revenues globally per annum going forward.
Nomura's recruitment of Douglas Decker to build a convertibles desk from scratch the US last week represents an attempt to wrestle some market share away from the dominant players.
JPMorgan analysts say that the top five players account for 42% of the market this year. Because the US market's supremacy, home grown firms like Goldman Sachs, Citi and BoA are able to leverage their corporate relationships and dominate.
And getting a foothold in the US is key to success elsewhere. As JP Morgan analysts state: "Presence in the US is required to get scale in convertibles as the US...is the largest region in terms of market capitalisation and the most liquid one for convertibles."
