Hedge funds may cut 20,000 workers

Bloomberg

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The dismissals will come on top of the 10,000 jobs that disappeared last year at the investment partnerships, according to estimates by New York-based Options Group, an executive-search firm. Employment peaked at 155,000 in 2007, and has since dropped to about 145,000, the firm said.

"Hiring activity is much reduced and it’s going to get worse," said Hank Higdon, managing partner at Higdon Partners, a New York-based search firm focused on financial services. "I don’t see markets improving at all."

About 920 hedge funds, or 12 percent, closed last year, according to data compiled by Hedge Fund Research. Of the 6,800 single-manager funds that remain, 70 percent lost money in 2008, meaning they can’t resume collecting performance fees until the losses are recouped. Those fees, generally 20 percent of investment profits, are the primary source of cash used to pay bonuses.

Hedge funds eliminated about 6.5 percent of jobs last year, when client assets fell 37 percent to $1.2 trillion from their peak in June, according to Hedge Fund Research. Banks and brokers have fired more than 272,450 workers, or 5.9 percent of their payrolls, since mid-2007, according to data compiled by Bloomberg.

Decline in assets

Hedge-fund assets may fall an additional $250 billion, or 21 percent, this year, estimates Huw van Steenis, a financial-services analyst at Morgan Stanley in London. That would leave hedge funds, which cater to wealthy individuals and institutions, overseeing about $950 billion, the lowest since 2004. Last year, Citadel Investment Group, the Chicago-based firm run by Kenneth Griffin, cut about 150 people, or 11 percent of its workforce, as it exited investment areas including emerging markets and reinsurance. Griffin, 40, still employs 1,200 people at the firm, which manages $12 billion, and is hiring in its market-making business. The firm’s biggest funds lost about 55 percent in 2008.

Steve Cohen’s SAC Capital Advisors, based in Stamford, Connecticut, cut 100 people, or 13 percent of its staff. The reductions included fixed-income traders as Cohen, 52, scaled back bond investing in favor of trading stocks. He manages $12 billion.