Hedge fund managers generally find their business from pension funds, foundations, endowments, and high net worth individuals. Because hedge fund managers usually deal with entities that can withstand large short term fluctuations in the value of their assets, hedge funds are authorized a greater range of investment strategies.
Since some of these strategies used by hedge funds include short selling and leverage, most hedge fund managers need economic and market volatility to make a living (there are, of course, many exceptions to this generalization). This is in contrast to such financial careers as investment bankers and private equity professionals, where market volatility does not generally play into their hand.
Market Effects on Hedge Fund Managers
So, how has the recent economic and market conditions helped or hurt hedge fund managers? Based upon estimates of the industry, the theoretical idea that volatility is good for employment only has limited applicability, with the main reason being that, although volatility may be good for many active hedge fund traders, many others’ use of leverage in times of declining equity prices only exacerbated their losses.
What’s happened to employment in the hedge fund industry the past decade? Employment growth in the hedge fund industry had been fairly strong over the past ten years, growing by an average annual growth rate of about 13 percent. The trend of strong employment in the industry hit a snag in the fall of 2009, declining by about 15 percent at its worst point. The culprit, of course, was the financial crisis that surfaced in the fall of 2007, but really took full force in 2008 and 2009.
Since the summer of 2010, the year over year growth rate in employment has averaged around 3 percent, or about three times as much as the overall economy has grown over the same time horizon. Some readers might find it interesting that the hedge fund industry is growing at around three times the rates of the overall economy even though the industry was blamed as a critical factor in the recent recession. So, although some hedge funds surely blew it , there’s still a lot of trust out there.
Hedge Fund Employment Future
What does this all portend for the future of the economy’s hedge fund industry and its employment growth? Well, although there’s growing competition from mutual funds that attempt to mimic as many hedge fund strategies as possible and there’s growing concern that hedge funds aren’t worth the money, the simple answer is that there continues to be strong demand for alternative methods for managing assets, and hedge funds are the go-to-guys when this question comes up.