New York, NY – Over the past few months, the team at Integrity has warned readers that the buy-side would be forced to cut the number of investment analysts on staff. With many firms experiencing poor performance, significant redemptions, and plunging fees, it makes sense that hedge funds and mutual funds would reduce headcount. However, the analytical cuts at most buy-side firms have not kept pace with the declines in firm revenue. Consequently, we anticipate that many buy-side firms will continue reducing their analytical headcount throughout the remainder of 2009.
A few weeks ago Boston-based asset manager, Fidelity Management and Research, laid off close to 30 analysts – one of the largest single analyst cuts in the firm’s history. This, added to the layoffs seen late last year, puts the number of recent analyst reductions at Fidelity at between 40 and 50. Despite these reductions, Fidelity still employs at least 500 analysts on a global basis.
Other large money managers who have made similar analyst reductions in recent months include Capital Group and American Century Investments. Los Angeles-based Capital Group laid off a combined 6% of its global work force last year. Company management recently sent a memo to its employees saying that they expected another round of reductions by June 30. Last November, American Century Investments cut its staff by 17%. The firm doesn’t expect that it will need to make further cuts during this downturn.
The Options Group, a Wall Street recruiting and compensation firm, recently estimated that the hedge fund industry has experienced job losses of close to 14% for the industry. Since peaking at roughly 155,000 jobs in 2007, hedge fund employment has fallen by 10,000 jobs to 145,000. Thus far, most hedge fund layoffs have been with sales people, marketers and those who gather assets, followed by back-office operations staff and traders. Analysts and Portfolio Managers have been impacted less severely.
Despite the cuts already experienced, we suspect that most money management firms have further reductions still to go. Many market analysts anticipate that the investment management industry is likely to suffer a 40% or more drop in revenue in 2009. However, most buy-side firms have not made similar cuts in their cost structure. In fact, we would not be surprised to see an additional reduction of 10% of the workforce at buy-side firms before this cycle is over. Consequently, we expect hedge funds and mutual funds will be laying off even more investment analysts in the months to come.