Riskon in the News
Have Trading Strategy, Will Travel
Summer will be here soon and the living is easy, to paraphrase George Gershwin’s song from his 1935 opera, “Porgy and Bess.” But for many on Wall Street, the tune they should be spinning on their stereos (sorry: downloading to their iPods) is the 1950s do-wop classic from The Silhouettes.
“Sha na na na, sha na na na na,” the group sang to an upbeat tune, cut short by the preemptory: “Get a job.”
Mayor Michael Bloomberg has already warned that of the 42,000 job cuts announced by Wall Street, more than 19,000 of them will be in New York . Since Wall Street is an industry on which Bloomberg’s city is uniquely reliant, the Mayor’s $59.1 billion budget proposal calls for reducing city spending to counteract the deficits that Bloomberg says are coming.
(Bloomberg’s budget presentation came at the beginning of the month, so the layoff numbers predated firing announcements that would raise the final figures, such as UBS’ plans to cut 2,600.)
“The good times do not last forever, as we all recognize,” Bloomberg said in his statement accompanying his budget proposal.
Would that a few Wall Street banks had recognized that phenomenon a year ago, must be the thought going through the mind of pink slip recipients. The unprecedented writedowns of hundreds of billions by Wall Street firms that failed to zig when they should have zagged during the credit crunch will soon show up in the human misery of jobs lost and careers disrupted.
Citi has said it will lay off 9,000. Morgan Stanley announced an additional 1,500 employees will be let go, on top of 2,800 that were already sent packing at the beginning of the year. Merrill Lynch will add an additional 3,000 to the unemployment rolls on top of the 1,100 it already laid off. Lehman Bros. laid off 4,900 and might add more if things don’t improve.
Then there’s Bear Stearns. Fully half of the 14,000 strong Bear Stearns workforce is expected to be out of jobs as a result of the firm’s merger with JPMorgan. JPMorgan employees cannot yet rest easy, however, since some of the topnotch Bear traders may take precedence over their counterparts at Jamie Dimon’s bank.
One saving grace of this jobs hemorrhage is that it has cut across the board, reaching all the way to the C-suite. Notable CEO layoffs included Chuck Prince at Citi, Stan O’Neal at Merrill and Jimmy Cayne at Bear.
What’s one sectors’ pain may also be another sectors’ gain. Out on the street talent could be a boon for hedge fund firms seeking to bolster their trading desks.
“Many of the hedge funds will take advantage of the available talent,” says Barry Honig, whose executive search firm, Honig International, specializes in financial services and trading and technology.
It’s also an industry that has a large amount of money going into it. HFN figures for 2007 are about $2.8 trillion in the asset classes.
Brian Drum , whose executive search firm Drum Associates does about 60% of its business for financial services firms, says that hedge funds usually don’t have a large employment base; however, they will spring for talent.
“They look for specialization and a high degree of financial capability, Drum says. “They can attract the best of the best.”
One sign of the times is that people who have knowledge of credit instruments are likely to be in high demand as firms hover over distressed assets, looking to buy when the price is right.
“For the first time they’re looking for the credit analysts, people who understand distressed debt,” Drum says.
What kind of desk the bank employee worked at is also important to hedge funds, Honig says, since trading with all the support of an investment bank behind you is very different from trading at leaner hedge funds.
“Typically the firms want to hire people who are able to generate alpha outside of a bank environment,” Honig says.
Drum says that first or second year associates are going to find the going tough in this environment since firms will be able to attract higher-level personnel.
Hedge fund firms are also not likely to invest in bank employees on the operational side, Drum says, unless they can bring something special to the table.
However technology experts might be of interest to hedge fund firms, Honig says, “It’s a very interesting opportunity for many hedge funds to steal away some very senior quantitative and senior technologists who were supporting some of these businesses that the banks closed down.”
For A-list talent, however, the hedge fund firms will face competition, according to the recruiters, the very banks that are laying off so many people to begin with.
“What we’re finding is that the banks that are having layoffs have actually been paying rather large numbers to retain the people who they don’t want to lose,” Honig says.
On the other side of the recruiting table, job candidates have very different questions that they are asking of prospective hedge fund employers, mostly engendered by the security that does not come as a perk of a Wall Street position.
“The candidates themselves want to know about the risk management of the firm,” Honig says. “They don’t want to go to a hedge fund that will be blown up.”
As to the all-important issue of compensation, Drum and Honig agree that job hunters have to expect to move laterally in terms of money, or perhaps even to be willing to take a cut in pay.
“There will be less of a commitment to total compensation,” Drum says. “They probably won’t be asking people to take drastic cuts in salary, but there won’t be as much of a commitment on incentive.”
Honig says that one area that is actively recruiting for American banking expertise is Asia , although the candidate has to be willing to move there.
Asian financial markets “are still very much growing and booming,” Honig says. “Not only for proprietary traders, but also for technologists, for operations, for risk people; there are major opportunities for people.”
Drum adds the piece of advice that Wall Streeters who have been laid off should start looking as soon as possible.
“You think, I’ll take the summer off and go to the Hamptons ,” he says. “But you should look for opportunities and assess them.”
Sometimes that assessment might lead to a surprising result.
“A guy called us; he went out and bought two Dunkin Donuts franchises,” Drum says,” He said why not, I don’t need to be in the cycle anymore.”
Or, as Brad Pitt said in the movie “Fight Club,” “You’re not your job.”