If the subject were recession, defined by the media as two or more consecutive quarters of decline, then one would correctly view the past three quarters of declining hedge fund assets under management as akin to a recession in the hedge fund industry.

However, economists can find no common ground for defining a recession. Obviously, the hedge fund industry is unlikely to accept that these outflows are indicative of a trend toward declining assets under management.

Continuing the recession analogy, consider the definition offered by the National Bureau of Economic Research (NBER). Apart from the array of usual suspects, that is, unemployment, manufacturing output, real income and wholesale-retail sales, the NBER’s Business Cycle Dating Committee defines a recession as the interval between peak business activity and minimal business activity. A rise in business activity subsequent to the nadir signals the end of the recession and the commencement of an expansionary phase.

Some Things to Consider

Defining a start date for the shrinkage in hedge fund assets under management is complicated by varying lead times for redemption. Redemption of invested capital may require a notice of from thirty days to one year—possibly longer! Moreover, hedge funds will typically retain up to ten percent of the original investment until it has completed its annual audit as a safeguard against any inaccuracies in monthly evaluations.

Given these realities, one can only conclude that an investor choosing to redeem has given considerable thought to his course of action. Clearly, hedge fund redemption has much more significance for an investor than simply exiting a stock position. For exactly this reason, redemptions must be viewed as ominous events. After all, redemptions of the magnitude proposed by MetLife, suggest its willingness to sideline as much as $120 million in capital, based on its redemption target of $1.2 billion. By any measure, this is a significant indicator of MetLife’s deep dissatisfaction with hedge funds. Of course, this does not mean they are making the right decision. That, only time will reveal.

Moving in the Right Direction

The hedge fund industry suffered first quarter 2016 net outflows of around $17.8 billion. These outflows were nearly halved in the second quarter, coming in at $8.2 billion. Fourth quarter 2015 net outflow was a paltry, in comparison, $1.2 billion.

Noteworthy is the fact that first-half 2016 redemptions must have been initiated in late 2015, when the only plausible reason for such action was performance. Although performance has improved, one cannot dismiss the possibility that significant redemptions may still be in the pipeline.

The BREXIT may have caused sufficient market uncertainty to persuade institutional investors to stand pat. Again, only time will tell.

As for Hedge Fund Jobs

It would be less than candid to suggest a rosy short-term outlook for hedge fund employment. However, worth recalling, is the fact that Citadel cut 12 employees from its roster in mid-February of this year, only to announce its hiring of 17 portfolio managers in the waning days of July. Once more, only time will tell what the impacts of these continued net outflows will be to hedge fund employment.

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While it may be true that fewer MBA holders are entering the hedge fund industry, it is certainly true that recent headlines suggesting that these students “scorn” hedge funds or that fewer MBAs “want to work” for a hedge fund border on fiction.

Here Are the Facts

The articles referenced above are inspired by Training The Street’s (TTS) seventh annual MBA Employment Survey, which encompasses 293 first and second-year student respondents. This is not a large sample. Therefore, it is not unreasonable to assume a margin of error in the 2 percent to 3 percent range.

In last year’s survey, 4.9 percent of participating students aspired to a hedge fund job. This year’s survey saw that drop—to 4.78 percent. This is a 2.45 percent year-over-year decrease, but, when the margin of error is taken into account, the significance of this statistic diminishes. To interpret this statistic as evidence of MBA scorn for hedge funds or being indicative of fewer MBAs wanting to work in the industry strains credibility.

Additionally, 3 percent fewer survey respondents reported being the subject of hedge fund recruitment efforts. This is a more defensible case for any decline than is scorn for, or lack of interest in, the hedge fund industry.

An Honest Take on the Survey

There has been no statistically significant movement in the percentage of MBA students who have expressed an interest in pursuing a hedge fund career, and, therefore, no basis in TTS’s MBA Employment Survey to support the negative tone of the headlines referenced above.

Scott Rostan, Training The Street’s founder and CEO, said it best, “While positions at hedge funds, private equity firms, and to some extent startups, are highly coveted job posts, they are only available to a select few MBAs. Job seekers understand this reality and are focusing their job search on more readily available positions in banks and consulting firms.”

It is fair to say that “scorn” is NOT a factor. It is also apparent that students are placing the need for employment ahead of what they may “want” in a job.

Hedge Fund Compensation

While Mr. Rustan is dead-on with regard to hedge fund selectivity, it would behoove any MBA student aspiring to a hedge fund career to bone-up on the earnings potential an MBA enjoys in the industry. According to the 2016 Hedge Fund Compensation Report, hedge fund employees with an MBA enjoyed a mean base pay of almost $186,000 and a mean bonus check approaching $270,000 for total mean earnings of around $456,000 annually.

To put this in perspective, 16 percent of the MBAs surveyed by TTS earned between $76,000 and $99,000, while thirty-six percent fell into the $100,000-$124,000 tier. Only 40 percent can boast an annual base salary exceeding $124,000.

Hedge Fund Jobs

Employment in the hedge fund profession can be a lucrative proposition, especially for individuals holding an MBA.

Prudent investors perform their due diligence on all investment prospects. They do not rely on headlines, tips and biased reporting. A student is also making an investment when deciding the direction in which he will take his career. Make no mistake—this investment deserves the same due diligence.

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Why Do Hedge Funds Continue to Under Perform?

July 11, 2016

This is a top-of-mind question for institutional investors and the answers are as varied as the hedge fund industry. Obviously, the answers offered can’t all be accurate. Furthermore, answers will necessarily differ from one fund strategy to another. Morgan Stanley conducted a survey at a recent conference of long/short fundamental equity hedge funds. Morgan Stanley’s […]

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Will Hedge Funds Fail in the Brexit Aftermath?

June 28, 2016

The recent UK referendum, which resulted in the United Kingdom’s exit from the European Union, has rocked the financial world. The value of the pound plummeted to lows not seen in thirty years, exemplified by today’s valuation of the pound at $1.33, down from $1.48 immediately prior to the vote. The initial reaction of global […]

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Hedge Funds Close the First Half with Few Positives

June 13, 2016

It has been another tough year so far  for hedge funds, which in the aggregate, stood in negative territory in May—down 0.09 percent. However, year-to-date figures are positive, with aggregate gains of 0.75 percent. Interest Rate Uncertainty The direction of the FOMC and its chair, Janet Yellen, is uncertain with respect to the timing of […]

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Hedge Funds Face-Off with the 4 Horsemen of the Apocalypse

May 31, 2016

Who are these four horsemen? Pitiful performance, available alternatives, reduced fees, and impatient investors. Abysmal hedge fund performance has been the norm for the past five years. Hedge Fund Research reported the global hedge fund composite to be down almost 1.2 percent when averaged over the past five years. Contrast this with the S&P 500, which is up […]

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Are Hedge Funds Best Days in the Rear View Mirror?

May 16, 2016

After reading some of the articles published in response to the SALT Conference sponsored by Skybridge CEO, Anthony Scaramucci, one might be persuaded that this is the case. However, the authors of these doom and gloom pieces fail to recognize the resilience baked into the hedge fund industry by virtue of the innovative and entrepreneurial […]

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