Present Hiring Environment in the Private Equity and Hedge Fund Space 

July 22, 2008 – About 4 months ago I wrote an article entitled “Private Equity and Hedge Fund Hiring Trends Spring 2008 ,” in this article I discussed the issue of how investment banks were laying people off but within the Alternative Investment Space,  especially Hedge Funds and Private Equity firms, that hiring was still moving forward.  Four months later the investment banks continue to lay off experienced investment bankers and while alternative investment funds are still hiring, they have slowed their process and are hiring very selectively, particularly in new and additional strategic areas.

These strategic areas may include new strategies for the funds or a new investor base such as funds which are trying to raise assets from institutional investors or foreign entities for the first time.  Many of the larger Hedge Funds and Private Equity firms have recently added new strategies to their platforms; in order to appease the appetite of their institutional investors and to broaden the funds revenue streams. In many cases these funds are becoming large alternative asset management firms offering numerous Hedge Fund and Private Equity strategies under one roof.

Although growth is occurring among the larger firms, these firms are not hiring much outside of these new strategies. This is especially the case with the largest of funds which already have a solid infrastructure/platform in place and their biggest challenge to adding a new strategy is finding the right team for the strategy.

With the equity markets being down for the year, many funds, especially small to medium size Hedge Fund; are having a tough time finding the extra money to hire new talent. Furthermore it is essential and smart for these firms to keep a cash reserve in place, the reserve enables them to retain their top employees. For the funds that have returned a positive performance year to date, the smart funds are using their success to hire and recruit top notch talent from firms which are not performing as well, chiefly in areas outside of the positive fund’s present strategies.

We have also seen where the credit environment is still negatively affecting funds either by the lack of leverage available to them or the client redemptions which continue to happen because the fund’s clients are forced to redeem positive positions in order to survive their own internal credit crisis.  This lack of leverage and higher redemptions is preventing growth and hiring for many Private Equity and Hedge Fund firms.

The leverage issues are predominately affecting quantitative trading firms, high frequency trading firms and larger Private Equity funds.  The redemption issues are more of a concern for the mid size firms in numerous strategies which have built up a strong infrastructure as ordered by their institutional investors but now due to no fault of the fund’s these same institutional investors are withdrawing assets and hence putting additional financial pressure on the entire fund.

As I mentioned in previous articles and on my Blog this combination of issues has continued to slow down the hiring process. With the hiring process slowing, a recruiting back log has started to form within many firms which of course leads to a slow down in the overall hiring space.  On the positive side, once these flood gates open, this back log will benefit qualified experienced professionals in the form of bidding wars for their services.  The reason for these bidding wars will be based on the theory of Supply and Demand. There is still a lack of professional talent in the Hedge Fund and Private Equity space so once the market turns these funds will all be recruiting from the same talent pool.

In conclusion hiring is still occurring in the Private Equity and Hedge Fund space but is has slowed down and until the credit crisis is over it will continue to be slow.  Furthermore although some funds enjoy volatility the overall negative tone of the equity markets has slowed down hiring, expect for those individuals who have tremendous performance numbers.  These candidates in particular are joining larger alternative investment management firms where these new strategies can be funded internally and run almost as separate entities.