Where will the jobs appear (and disappear) in the financial services industry in 2006? After peering into our crystal balls, here are a few suggestions.
· Real estate: Gordon Brown's December pre-budget report gave the go-ahead to Real Estate Investment Trusts (Reits), a tax efficient way of investing in property. Companies are leaping on the bandwagon: in December Fidelity International announced it had recruited Neil Cable from Standard Life to launch a range of real estate funds. Watch this space for further hires.
· UK M&A: Rumour has it that the UK will be the prime beneficiary of a European mergers and acquisitions boom in 2006. Driven by low interest rates, buoyant stock markets and rising corporate profits, Morgan Stanley forecasts deal making activity in the country will rise 30% next year, to 1,300bn. Junior execution bankers are likely to remain in demand.
· Corporate broking: What's good news for UK M&A bankers is also good news for the country's corporate brokers, who provide a doorway through which banks can sell their M&A expertise. Citigroup and Morgan Stanley have bulked up in UK corporate broking in recent years. CSFB recently moved Michael Lever into its corporate broking team from equity research. Other hires/moves may follow.
· Anything to do with electronic trading: The use of algorithms and direct market access has grown at three times the rate of normal trading on the LSE over the past three years, and all signs are that it will continue to do so. Experts on selling the full range of electronic trading products are likely to find themselves in demand.
· Financial sponsors - Investment bankers who liaise with private equity funds can expect their services to remain sought after. Private equity groups accounted for some 17% of global M&A in 2005, and estimates suggest they have a further €60bn ($71bn) to invest this year.
· Hedge funds' back office - Following poor performance in 2005, money may flow out of hedge funds in 2006. However, this shouldn't stop jobs being added in the back office as hedge funds transform from fly-by-night vehicles for private investors into bona fide repositories of institutional funds. Risk managers, HR types, compliance staff and chief operating officers are likely to remain top of shopping lists.
· Funds of hedge funds: 2005 wasn't a great year for funds of hedge funds. According to data provider Hedge Fund Research, investors withdrew around €1bn in assets from the sector between July and September. Expensive management fees and the underperformance of some hedge fund strategies could prompt further withdrawals this year. Job losses may well follow.
· Citigroup Asset Management Europe: Since its acquisition by Legg Mason was completed last December, jobs at what was previously known as Citigroup Asset Management Europe are not looking too secure. Legg Mason has set aside $30m (€25m) to fund redundancies and over half of the London office, which employs some 160 people, is thought likely to be made redundant.
· Equity research: 2006 doesn't look particularly promising for equity researchers. Asset managers now have to disclose just how much of the money they pay brokers goes on research versus trading. Once the cost of research is apparent to their investors, asset managers may well prefer to conduct research in-house. Nor is this likely to provide any solace for redundant equity researchers: Fidelity recently decided to outsource its company research to India.
On the edge:
· HSBC: After spending many millions hiring staff, HSBC said in November that its investment banking and markets expansion is now complete. All that remains now is proof that the burst of recruitment has been worthwhile. This could be easier said than done: according to information provider Thomson Financial HSBC ranked 16th for European M&A deals announced in 2005, up just one place on 2004.
· Leveraged finance: Leveraged finance had a record year in 2005. With new investors like hedge funds piling into the market, balmy conditions look set to continue in 2006. However, multiples of leverage to assets have become suspiciously high, and a few high profile defaults may be all it takes to knock the sector, and its appetite for hires, off its perch.
· Fox-Pitt Kelton: Insurance group Swiss Re put Fox-Pitt, Kelton, its specialist investment bank, up for sale at the end of last year. Fox-Pitt employs around 150 staff in London, New York and Hong Kong, some of whom may be understandably concerned about their job security. The good news is that a management buyout looks the most likely option.