Hedge Funds Slash Trading Teams

Chuck Rost

Chuck Rost

Oct 10 2012 | 12:25pm ET

Hedge funds are aggressively cutting back on their trading staffs as weak trading volumes left those teams with less to do.

Some 44% of hedge funds have cut their trading-desk budgets since last year, according to a Greenwich Associates survey. A similar number, 43%, said they were in the process of cutting costs.

Just 17% said they were boosting their trading budgets.

Greenwich said that hedge funds appear to be cutting more aggressively than other institutional investors; it blamed low trading volumes for hurting revenue at the desks.
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http://www.finalternatives.com/node/21818
 
I believe, given the source, that when they reference "traders" they mean execution-only traders, who are being replaced by algos that the portfolio managers can just use themselves. Why route the order to your internal desk just to have the trader re-route to an algo while paying said intermediary a salary/bonus/benefits?

If a "trader" has his own book or an allocation of the fund that he trades with discretion, then he is really a portfolio manager, even if he sits on the desk, executes his own orders, and calls himself a "trader". Always room for good/smart/lucky PMs/traders with their own alpha-generating ideas...increasingly less so for those who just execute other people's ideas.

A good buy-side execution trader can certainly add value (especially in thinner stocks) and on the centralized desks with huge orders, you'd better have someone good working the trade. But with many funds organized into smaller, sub-groups that run their own sub-P&Ls (SAC, Millennium, etc.), there is far less need for the extra body just to execute.

Before Reg ATS, algos, and decimalization, your buy-side trader did much of his work on the phone turret and it was too labor intensive and specialized for the PMs, so you needed good, tough folks who could work in between the spread, get market makers to commit capital, and make sure your brokers were doing their job.
 
The analysis is. The order entry/splitting/legging in and out, is not.

It's a buy or sell decision. Then let the computers take care of the rest.
 
Quote from dealmaker:

Large trades are done on fundamental analysis that's very hard to automate...
More...

Agree. Doing fundamental by talking to the right people, sleeping with the right people, paying for the info is hard to automate.
 
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