With hedge fund bonuses all but extinct and salaries under pressure, hedge fund jobs may be about to become the preserve of a moneyed elite, able to survive for years on very little.
Most hedge funds are now below their high water marks, following a disastrous September and an even more brutal October. Failure to exceed high water marks means failure to earn performance fees. And no performance fees means zero bonuses.
Salaries are taking a hit, too. Most funds cover fixed compensation costs from management fees, but client redemptions and difficult markets mean management fees are also under pressure.
Survival = lower pay
At the same time, with anything from one third to one half of hedge funds expected to go out of business, survival is the priority. And survival means hedge fund staff are being forced to accept lower pay.
John Godden, founder and chief executive of hedge fund advisory firm IGS Group, says salaries as low as 50k are now on offer to some traders and portfolio managers, compared to 150k in the past.
'Hedge fund principals are going to be looking for people who can come in on a much lower fixed package," says Godden.
Reduced performance fees
Bonuses may move even lower in future. Clusterstock reports that some US hedge fund partners are now so desperate that they're prepared to cut performance fees.
Lower fees are preferable to the obvious alternative: no jobs. Although GLG is still hiring, recruiters say smaller funds are already trimming headcount. "A lot of people are getting fired. The performance fee isn't there, and management fees have been cut in half by redemptions," says David Durham, of hedge fund recruiter Durham Consultants.
The squeeze isn't impacting all hedge fund jobs equally. "There's still wage inflation for middle-office functions like operational due diligence," says Godden. "But there's deflation for trading, portfolio and management and sales, where there's a huge oversupply of people."
Employment lawyers point out that hedge fund partners have fewer employment rights than the average banker: "They can't claim unfair dismissal and can only claim for breach of members' agreements or contractual rights for bonuses," says Jane Mann, head of employment law at Fox Williams.