The hedge fund world is shrinking -- and fast. For savvy players, though, there are still opportunities around every corner.
London Hedge Funds Stay Put
London hedge-fund managers, by and large, haven't followed through on threats to move their offices and jobs out of the city's financial hub, despite predictions that higher income taxes would lead to an exodus of the investment firms. Turns out that hedge funds feel the personal and professional benefits of staying in London outweigh the higher tax costs
. Effective in April, individuals earning more than GBP150,000 ($246,000) a year will see their U.K. income-tax rate rise to 50% from the current 40%. Competing fund jurisdictions such as Singapore, Dubai and Switzerland have attracted business with effective tax rates ranging from zero to around 20%.
Hedge Fund About-Faces on Personnel Moves
Hedge-fund jobs are on the rebound, at least in some corners of the industry. SAC Capital Advisors
, the big Connecticut hedge-fund firm run by Steven Cohen, rehired two London investment managers it had let go less than a year ago. SAC, like many hedge-fund firms, cut traders and other staff after funds broadly suffered investment declines and investor withdrawals in 2008. As Bloomberg reports
, SAC is rebuilding its London office as funds globally regain momentum this year. The message for employees who are shown the exits, one industry expert says, is not to burn bridges on the way out.
AIG Investments Finds a Home -- Jobs Saved
American International Group
's asset-management division, known as AIG Investments, employs more than 1,000 people in 32 countries and oversees almost $90 billion in assets invested in hedge funds, private equity, real estate and listed securities. And now, the unit has finally sold -- following efforts to market and auction the unit that lasted roughly a year. Wealthy Hong Kong investor Richard Li led the buyout, agreeing over the U.S. Labor Day weekend to pay about $500 million in cash and future payments linked to performance of the business. The existing AIG managers get to stay in place, and the long-awaited sale should help preserve jobs that had been endangered by the uncertainty hanging over the division
. However, it's unclear how the business, which is expected to see some restructuring, will shape up and how clients -- including pension funds and wealthy investors -- will regard the handoff. Many clients can pull assets if they want, so the coming months will help determine how big an investor and employer the AIG business remains.
Deals Brewing in the Fund of Hedge Funds World?
While many hedge funds of funds are shrinking, others in the business -- which specializes in taking in money from clients and selecting a range of hedge-fund managers as investors for those clients -- are mulling big deals that could strengthen already-big players. That's the case with the $11 billion fund-of-funds unit of Mesirow Financial in Chicago. Swiss bank Credit Suisse Group AG
is considering acquiring Mesirow's hedge-fund investment unit, which would add the big pile of assets to the roughly $14.5 billion that Credit Suisse already has farmed out to hedge funds. The talks show how upheaval in the industry is prompting moves toward consolidation
. It also comes after some fund-of-funds clients felt burned when they learned some of their money had been entrusted to Madoff. Mesirow didn't put clients into Madoff, and its hedge-fund investment unit is seen as a strong player, particularly with an expertise in picking Asian hedge funds, so a deal will be closely watched.
Citadel Re-Brands to Mollify Investors...and Is Hiring
The big Chicago hedge-fund/broker-dealer/trading firm Citadel Investment Group
has shrunk in some areas but is hiring in others. One example: It's building up one particular business -- by landing the unit's biggest account yet, related to Lehman Brothers's bankruptcy, and also by taking "Citadel" out of the name. Called Citadel Solutions, it's a hedge-fund administrator. Citadel has landed a deal to provide administration services to a $50-billion-plus chunk of assets from the Lehman bankruptcy, more than doubling the Citadel Solutions asset base. Administrators provide accounting, software and other technical back-office services to hedge funds and other asset-management firms. One problem for Citadel is that would-be clients have balked at signing on because they don't want to be seen as reliant on the powerful technology that has made the giant fund administrator so successful. Citadel is looking to change that. It's going to call the business "Omnium" starting in September, The Wall Street Journal reports
. More broadly, hedge-fund administrators have been merging and hiring, as they become a more-prominent service provider to funds, whose investors are demanding third-party oversight.
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