Hedge fund withdrawls, leverage, and future job prospects

Citadel Hit Hard as Hedge Fund Withdrawals Continue - Seeking Alpha:

"The chief executive of a leading alternative investment manager said he expected the hedge fund industry to shrink by 50 per cent in coming months – with half the decline coming from withdrawals and half coming from investment losses.

Even if that prophecy only becomes partially true, that is a massive amount of deleveraging, unwinding, and liquidation. Forced selling is driving this market and will continue to do so"

More on the redemptions is available from Naked Capitalism which also correctly points out that the leverage that allowed more assets to be bought when money flowed into the funds, will result in more assets being sold when money flows out:

"Note that leverage figure is disputed....But even if that lower figure were true, redemptions of $150 billion would generate sales of $300 billion.

This semester my classes are exclusively upper level and grad classes, so regularly job prospects coming up in before and after class discussions. Over the past several years many of our graduates have one on to work at hedge funds so it is not surprising that some current students want to work in the field. Hence some coverage of jobs in the field is also warranted.

The Options Group estimates that 10,000 employees in the approximate 150,000 field will be laid off this year. From Bloomberg:

"Hedge funds may cut as many as 10,000 jobs this year as they struggle with their biggest losses in almost two decades, according to estimates by executive search firm Options Group.

The industry has already eliminated 3,000 to 5,000 jobs, out of an estimated 150,000 worldwide, Michael Karp, chief executive officer of the New York-based firm, said today in an interview. Layoffs may double by the end of 2008, he said.

``It's bad out there,'' said Karp, whose firm has tracked hedge-fund hiring since 1995. ``Generating returns is not easy at the moment and as funds look to cut costs, the best way is to let go of people.'"