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Winners and losers in the credit meltdown

Who’ll benefit and who won’t from the chaos in the markets? Here’s our considered verdict…

The winners

Derivatives documentation specialists
Know how to settle a derivatives trade? This could be your lucky day. According to Financial News, last week’s trading volume for credit derivative products was so high credit that derivatives operations teams were overwhelmed. Banks may yet turn to temps to help out. Oliver Harris, managing director of the financial services contract division at recruitment firm Robert Walters, says demand for ISDA documentation expertise is already at a high, with pay at 22 per hour and over for people with a year’s experience. Ellen Mulvey, a temporary consultant at recruiter Joslin Rowe, puts the hourly rate even higher – at 26 per hour for those with experience and 15 per hour for new entrants.

Risk managers
Our US site reports that hedge funds across the Atlantic are paying chief risk officers in excess of US$1m in an effort to lure them from banks. It says recent volatility means risk managers’ services are more highly prized than ever.

ECM professionals
With the credit markets at a standstill, could this be the moment corporates turn to equity markets to raise additional funds. Craig Coben, managing director of Europe, Middle East and Africa capital markets at Merrill Lynch, seems to think so: “When we had strong credit markets, private equity was outbidding the equity market as a capital-raising strategy for companies. But, with the recent credit correction, the IPO becomes a relatively more attractive channel for monetising an equity stake,” he told Financial News.

Private bankers
OK, private bankers might not have as many clients or as many assets to manage once wealth has been decimated by plummeting markets, but those who still fall into the high net worth category will find the advice of a good private banker all the more worthwhile. For the moment, there’s no sign of Barclays Wealth abandoning its recruitment drive and Alan Johnson, a Wall Street compensation specialist, predicts wealth managers’ pay will rise 10% this year.

Restructuring specialists
If, as anticipated, chaos in the markets spreads to the real economy, demand for restructuring professionals could yet receive a much anticipated fillip. Close Brothers reshuffled its corporate restructuring unit last month and is expected to recruit. A spokesman told the Telegraph the unit is positioning itself for growth, predicting: “Our restructuring unit will serve us well in a time where highly-geared companies will struggle.”

Traditional fund managers
With many hedge funds struggling, long-only asset managers may yet find it easier to a) attract and b) retain staff. With luck, they will also make money from buying at the bottom of the market.

The losers

Quants, particularly those who work at quant-related hedge funds, haven’t come out too well from events of recent weeks. Goldman Sachs’ US$3bn emergency cash injection into its quant-driven Global Equity Opportunities (GEO) fund after it lost 32% of its value was followed by similar losses at competitors, including (according to the Times) JPMorgan-owned Highbridge Capital Management and New York’s Tykhe Capital. Quant-related losses are also in evidence this side of the Atlantic – the Financial Times reports that the AHL computer-driven quant fund run by a London-based hedge fund had lost 9% of its value in the past three weeks. One can only assume quants who build the models for these funds won’t be quite so popular or well paid in future.

Credit traders
Last week, UBS warned of a “very weak trading result” in the third quarter if markets continue to fluctuate. Financial News says Deutsche Bank is “reassigning” staff on one of its London credit trading desks after they lost around €100m.

Hedge fund managers
Even hedge funds that didn’t dabble too heavily in the sub-prime sector are feeling the pain – witness Sowood Capital Management, a US$3bn American hedge fund that collapsed in July despite having (according to the New York Times) limited sub-prime exposure. Funds that want to stay upright may be forced, like Goldman Sachs’ GEO fund, to waive fees (and therefore reduce pay). John Devaney, founder of another ailing hedge fund, United Capital Markets, has already put his helicopter and yacht up for sale. Keep an eye on eBay for other playthings of the haemorrhaging hedgies.

Prime brokers
Risk aversion means banks’ prime brokerages have become distinctly sniffy about lending money. A few weeks ago, the Financial Times reported banks were imposing tougher lending terms on hedge funds, thereby threatening to leave prime brokers without anything to do except nurture losses at hedge funds they’ve loaned to already. Nonetheless, US compensation expert Alan Johnson predicts prime broker pay will rise 15% this year. Some banks are hiring regardless: Sam Molinaro, chief financial officer of Bear Stearns, told Financial News that the bank has no intention of dropping plans to expand its European prime brokerage business; and Lehman Brothers recently hired a capital introductions specialist in the US.

Sub-prime specialists
Unsurprisingly, anyone who has anything to do with the US sub-prime mortgage sector isn’t exactly de rigueur right now. Bear Stearns has cut 100 staff from its US credit unit, Lehman Brothers has chopped 400 from its sub-prime mortgage unit, and Financial News says UBS is sharpening its blade. Fortunately, the blood is all being let on the other side of the Atlantic.

Leveraged financiers
Debt is hardly flavour of the month and banks that failed to anticipate this have been left with a nasty taste. According to the Telegraph, the nine banks who underwrote Kohlberg Kravis Roberts’ 11bn bid for Alliance Boots, led by Deutsche Bank, JPMorgan and Unicredit, have been unable to sell a single penny of the 9bn debt. It doesn’t look good for leveraged finance bonuses (or jobs, come to think of it).

Comments (5)

  1. The recent events in credit markets expose the weaknesses in long only quant funds. They use sytems based on moving averages and standard deviations which work in trending markets. However any fool can make money in a trending market. For the true talented hedge fund managers this is a blessing in disguise.

    I have never Understood why a long only mutual fund is called a hedge fund these days ” may be its easier to cheat people with jargon” invest in CDO’s and leave them to a machine then go to play golf. Its like switching on the sat nav then closing your eyes while drunk hoping to get home safe. Quant’s lack “common sense”

  2. what does it all mean to me, as a recent graduate! should I be looking somewhere else?

  3. I just joined Leveraged Finance… WOW.. there is blood on the street my friends..

  4. Somebody jobs are still out there. the effect of this won’t be known for a while yet. things will get more cmpetitve, but alternative jobs will open up too. If you wanted to enter credit, MBS or something of that nature times may be hard. Apart from that keep positive and do keep your options open incase things get worse

  5. Well! the whole idea of Hedge Fund is to hedge the unforeseen risk that may knock on your door.

    i guess no one stood guard when the initial knocks were heard.
    let us Re-Define Hedge Fund and what they are suppose to do.

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