Employees at thousands of hedge funds in China are looking to leave the sector amid a government crackdown on rogue firms. But as China also allows leading foreign funds to set up in the country, more candidates are clamouring for jobs at the elite end of the industry.
Assets under management at Chinese hedge funds reached a record high of RMB2.29trn ($301bn) in the first half of this year, according to the Asset Management Association of China (AMAC), a regulatory body. In January the number of funds in China had swelled to nearly 25,000, a 44% year-on-year increase.
The industry’s expansion, however, has also spurred a rise in financial crime as so-called ‘phantom’ funds use their AMAC licences to cover fraudulent activity. Now the regulator is trying to clean up the sector – dubbed the ‘Wild East’ – and clamp down on hedge funds who flout its tougher new rules.
New reporting standards and a nationwide examination for fund managers were introduced earlier this year. More dramatically, last week AMAC announced that it had cancelled the licenses of over 10,000 hedge funds in China.
“This crackdown has definitely dampened the job market in hedge funds – there will be more exits than entries this year,” says Jason Tan, a partner at search firm Carlson Harriet in Shanghai.
“Morale is going down – most fund managers want a way out. Since June our firm has been receiving up to 70 Chinese hedge fund resumes a week,” adds Tan. “People are unsure about the duration of the crackdown and whether it will suffocate the industry.”
The recent and rapid growth of the sector in China means many hedge funds are staffed by people without previous buy-side or investment banking experience. “We’re meeting hedge fund employees who came from trusts, P2P lenders and insurance companies, for example,” says Tan.
“The industry is rather murky, and some people from banking and non-banking backgrounds have entered it with the sole intention of getting rich fast,” he says. “But because of the government crackdown on illegal activities, this is now becoming harder to do.”
As China continues to weed out financial crime in the industry, junior candidates should be wary about taking jobs at some recently established local hedge funds.
“It’s not like in the past when almost anything goes when you join a hedge fund. Before accepting a job offer look at whether the firm has a robust compliance framework,” says Will Tan, managing director at search firm Principle Partners. “If your fund is caught in the crackdown it could ruin your career – you’ll become tainted by association.”
Candidates should also review the “pedigree of the portfolio managers and the founder”, says Tan from Principle Partners. “It’s a good sign if they’ve worked at global hedge funds as this means exposure to rock-solid compliance. But think twice before joining a start-up run by a former sell-side broker who’s trying to use his Guanxi to make some money.”
China’s clampdown on rogue hedge funds is not deterring candidates from wanting jobs at the top local and global players, however.
The number of firms which manage over RMB10bn ($1.5bn) has increased from 21 in 2015 to 23 this year. Chinese funds such as Shanghai-based Greenwoods Asset Management were among the top performers globally last year.
“The industry is becoming more concentrated, with the stronger hedge funds dominating and becoming even more attractive to candidates as a result,” says Yao Xiong, an associate director at Profile Search & Selection in Shanghai.
Meanwhile, in a drive to deregulate domestic capital markets and attract new buy-side talent, China announced in June that it would allow foreign hedge fund managers to launch products in the country. Firms including Bridgewater Associates, the world’s largest hedge fund, have already set up operations in China.
“Having foreign players come in will only raise the competitiveness of the industry by making it more transparent and attractive to professionals from New York and London,” says Tan from Carlson Harriet. “Ultimately, only the ‘good’ hedge funds will remain to work for.”
Just don’t expect a hiring spree. “A lot of people want to join the top local and foreign funds for the training you get and the deep dives you can do into companies,” says Tan from Principle Partners.
He adds: “But these firms typically only hire one or two juniors a year and the barriers to entry are just as tough as in other markets. If you’re an investment banking analyst looking to move, you need to be an outstanding performer.”