Today the Wall Street Journal reported that the Hedge Funds are feeling the employment pinch and the rich are getting richer.
Just a few years ago, Wall Street players could leave their investment banking jobs and easily start their own hedge fund or join an existing fund and enjoy a much better quality of life. “[Hedge Fund] investors beat down the doors with eagerness reminiscent of the late-1990s dot-com frenzy. It took only a decade for the industry to grow to 8,000 funds from a few hundred.”
The article goes into the increasing number of smaller hedge funds that are closing and how it has become more difficult to open a new fund. The investors simply are not as willing to fund new projects. In 2007, 1,152 new funds were launched. That number is down almost 50% from its 2005 peak. Now, that said, the upside is that the hedge fund industry expanded by 589 funds last year – so, it’s not all gloomy news.
David McCarthy, a 20-year hedge fund veteran, recently closed his fund – even though his fund beat the market last year. Why shut the doors? “Investors kept telling him the $300 million firm was too small.”
Perhaps the most interesting point brought up by the report was about the dominance by the largest funds. By the end of last year, 87% of all the money in hedge funds was handled by funds managing $1 billion or more. A full 60% of that was held by managers sitting on $5 billion or more. Of course, the largest public hedge fund is Man Group PLC. It increased its assets to $78.5 billion. Now, THAT’s some capital! (and yes, they are trying to fill hedge fund jobs.)