Yesterday we noted the report from Financial News Online that hedge fund launches are in a slump. That was based on the First Quarter 2008 Industry Report from Hedge Fund Research, a Chicago firm. Acutally, fund launches during the first quarter, last year, just barely surpassed this year’s figure, but an eight-year low is still something to notice. An even more telling observation, though, is that the number of fund liquidations is 23% higher than during the same period last year, as London’s Times reports. A spectacular quantity of hedge fund assets did indeed vanish in the the early months of this year.
Poor performance isn’t the only factor at work; fund raising now is more difficult than formerly. (Executive recruiters have noted on this blog that 2008 is a good year for talented hedge fund marketers, and that has been clearly manifested in the hedge fund marketing jobs posted to Hedge Fund Search Digest’s database of opportunities.) However, as we noted last week, some of the larger funds are not only avoiding struggles that face start-ups, but positively thriving; it is a time of consolidation. (From the Reuters article linked below: “The decline in hedge fund launches also shows the preference shown to industry’s largest funds, which tend to be favored by institutional investors.”) Also, since hedge fund strategies differ so widely, there remain ways in which the overall state of the industry defies generalization, almost by definition. Some strategies are thriving precisely because of conditions adverse to others.
And the funds that are in a position to do so are taking advantage of the generally severe financial job market, and hiring. Bloomberg (“Hedge Funds Hire From Wall Street as Jobs Disappear, Pay Falls”) and Reuters (“Investment banking’s pain is hedge funds’ gain”) report on this amplification of a traditional dynamic: a big grab for talent out of investment banks by stable hedge funds, made possible by the cuts that have left many thousands unemployed and many others increasingly willing to leave positions that may not be secure. Traditionally, the potential for much higher pay at a hedge fund had to be set against the greater risk of the more entrepreneurial environment and the relative stability of employment at a bank. But that stability has been comprised, even as shrinking bonuses at investment banks suggest the pay gap will increase where hedge funds are successful. It’s not a bad time to get in touch with your recruiter.