It is no secret that hedge funds, in the aggregate, are seeing dismal gains this year. Of course, there are outliers, firms such as Maverick Capital, reportedly enjoying double digit gains, while on the other side of the proverbial coin, we have juggernauts such as Greenlight Capital on the path to posting its first loss since the 2008 financial crisis.
Understandably, in the midst of all this turmoil, many are questioning how realistic job prospects might be in the hedge fund industry. Will hedge funds still be hiring? Will firms be down-sizing? Will large numbers of hedge funds be closing? These are all legitimate questions that anyone aspiring to a career in hedge funds would be asking. Let’s try to work through these questions together.
Will We See a Hiring Freeze?
While it is possible that some hedge fund managers may institute a hiring freeze, it is very unlikely. A hedge fund’s performance isn’t a function of how many people are in the firm but, rather a function of how well they execute their responsibilities. If a fund’s performance issues can be traced to an individual’s poor job performance, chances are very high that person will be terminated—and replaced. Hedge funds tend to be managed on an entrepreneurial model which means they run lean. Rarely do you see dead weight in a hedge fund firm. As a result, people who are let go must be replaced…so no hiring freezes.
What about Down-sizing?
Essentially this was answered earlier, at least in part, by pointing out the fact that hedge fund firms operate lean as a matter of course. If you are running a lean operation, you generally cannot make significant reductions in staff without hurting the firm. Of course there is always the concern that performance was so egregiously indefensible that redemptions would skyrocket. Even if that were to occur, it would likely be several months before assets under management fell to a level that might justify staff cuts.
Will Hedge Fund Closings Ramp Up?
If one looks to the aftermath of the 2008 financial crisis, when aggregate hedge fund performance was worse by several multiples than 2015’s performance is shaping up to be, instead of closures, we saw unprecedented growth. That’s not to say we will not see some funds shutter and return capital to investors. We will but it’s important to keep in mind that there are fund closings every year! However, year after year, hedge fund startups have outpaced hedge fund closings and there is no evidence that 2016 will be any different.
This year’s hedge fund performance, although unimpressive, is less a reflection on hedge fund manager competence, than it is on performance of the broader financial markets. The DJIA is down 3.13 percent from its December 31, 2014 close of 17,823.07 and the S&P 500 is down 3.27 percent. In contrast, the SS&C GlobeOp Hedge Fund Performance Index reports hedge funds, in the aggregate, to be up 0.21 percent.
In short, there is no reason to be pessimistic with regard to career opportunities in the hedge fund industry.