Hedge funds hit hard times

Fees are falling, redemptions are rising, jobs are being cut, and selling is no longer short – itís not a great time to be working in an Aussie hedge fund.

Hiring has ground to a halt as many funds fight a wave of redemptions, with Goldman Sachs, Deutsche Bank, Macquarie and BT being forced to freeze withdrawals. The countryís largest hedge fund manager, Platinum Asset Management, and the biggest fund of funds, HFA, are also feeling the pain of redemptions.

Niche players are suffering too. COO and head-of-operations opportunities have been put on ice at boutique hedge funds, according to Anton Murray, director of Anton Murray Consulting. ìSmall, struggling firms that suffered from poor performance in 2008 will be wound up, and many of their managers may go back to the larger traditional asset managers for the medium-term,î he tells eFinancialCareers.

Some funds are also trimming headcount, but the small size of these firms in Australia means redundancies are low in comparison to the banks, usually in single figures. ìLayoffs are based on performance over the last 12 months. If a particular product is performing badly, then the product will be cut and the fund manager and analysts will be cut too, or reassigned,î says Murray.

Compensation levels are likely to be lower in 2009 because many firms are decreasing the management fees they charge clients to retain funds-under-management. The traditional ì2-and-20î fee structure (2% management and 20% performance) might only be given to outstanding managers this year, Kim Ivey, chairman of the Alternative Investment Management Association, told the Australian Financial Review.

However, the second half of 2009 may lead to the creation of start-up funds that see market opportunities with historically low equity prices. ìAnd this growth could lead to selective hiring, especially for business development and sales people tasked with pitching to the super funds.
Capital introduction professionals, who work with prime brokers, may also be in demand later this year,î says Murray.

New start-ups will typically be founded with a two to three-strong front-office team, he adds. Recruitment will then open up for operations, COO and finance-head roles, and finally, as the fund grows, it will hire professionals such as traders, investment analysts and quants.