What Is the Impact of Outsourcing on Hedge Fund Jobs?

Any mention of outsourcing strikes terror into the hearts of American workers, many of whom suffered joblessness and related economic hardships because of their jobs being outsourced.

Increasingly we hear the “O-word” in the same sentence with hedge funds and, unsurprisingly, this creates concerns for those who aspire to jobs in the hedge fund industry.

At the same time, we must consider the plight of emerging hedge fund managers, as they struggle to put together and run a successful firm. This past July, Hedgeweek conducted a global survey of 135 small and emerging fund managers to collect their views on outsourcing. It is titled “Outsource More but Have a Clear Risk Framework in Place” and much of what follows is based upon this report.

What Positions Are Outsourced?

The report actually begins with the jobs that are rarely outsourced. These include the Chief Operating Officer (COO), marketing positions, investor relations staff, business development staff and the Chief Risk Manager (CRM) and outsourcing in these positions ranges from 6 percent to 15 percent.

The most outsourced positions are legal staff, with 62 percent reporting that this is an outsourced function in their firm. That is followed by Chief Technology Officers (CTO), with respondents confirming a 44 percent rate of outsourcing. Lastly, we have the Chief Compliance Officer (CCO) role, which is outsourced by 31 percent of survey participants.

Why Do Managers of Emerging Funds Outsource?

Initially, everyone regards the decision to outsource as a cost cutting measure but it is more complex than simply budgetary considerations. One has to understand that these emerging funds are typically founded by portfolio managers/traders that suddenly become business managers. One can certainly grasp the appeal of outsourcing for such individuals. After all, managing a hedge fund is many multiples more complex a task than occupying a position in the front office of an existing fund.

While cost savings are undeniably a factor, much of the decision regarding outsourcing depends on the expertise the manager possesses. Once the emerging manager has established his personal limitations, he/she will turn toward outsourcing to close the gaps. Of course, these outsourcing decisions must also be justified in economic terms. Additionally, his/her investors must be satisfied that all bases are covered.

What Is the Effect on Hedge Fund Jobs?

Realistically, any hedge fund startup should be viewed as another opportunity for employment. The fact is, the overwhelming majority of job seekers will be seeking to fill positions below the level the report cites as prime targets for outsourcing. More to the point, the fact that positions in emerging and small funds are being outsourced is largely irrelevant, because these are positions that still need to be filled, whether they are in-house or not.

In short, it is unlikely that outsourcing will produce the same ill effects we have seen in other industries, such as manufacturing and customer service. More hedge funds mean more jobs and the “O-word” should not prove a serious concern for hedge fund industry job seekers.

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