How is Investment Banking Employment Doing Compared to Private Equity and Hedge Funds?

In the financial world everything is competitive.  Going along with the culture, of the three major sectors – investment banking, private equity, and hedge funds – where has employment expanded the fastest?  Here’s a look at employment growth by these three sectors since 2008.

Total Employment Growth Since 2008

In total growth terms, private equity has experienced the strongest recovery, up 4.3 percent since January 2008. In second place is hedge fund employment, up 3.3 percent. Coming in last is the investment banking sector, still down 4.7 percent.

1 Growth in emp

Employment Growth by Month

The total growth outcome leaves some questions.  The following is a look at employment growth since 2008 by these three sectors broken down by month.  Some interesting trends emerge.

First, the recovery has not been smooth for any of the three sectors, although private equity comes somewhat close.  The investment banking sector has gone through the choppiest recovery when measured by magnitude and frequency of declines.  The sector reached a low of -9 percent growth in both January 2011 and May 2012.  The best growth figure the sector has had since 2009 (relative to 2008) was in August 2010, where it was almost flat, to where employment stood in January 2008. The smoothest recovery has occurred in private equity.  The sector bottomed out at about -4.6 percent in May 2010.  The sector’s recovery has been relatively non-choppy, with consistent gains since May 2010 (with the occasional hiccup).

Second, the timing of the recession’s effect was somewhat different for all three sectors. The investment banking sector peaked in August 2008 at 2 percent. In contrast, hedge fund employment peaked in October 2008 at 8 percent followed by private equity employment, which peaked in December 2008 at 2 percent.

The bottoms did not coincide either, with investment banking bottoming out in September 2009 at -8 percent (at least for the initial bottom), hedge fund employment in November 2009 at -13 percent, and private equity employment reaching the bottom around May 2010 at about -5 percent.

Finally, investment banking employment growth continues to lag, while hedge funds and private equity are taking off.

2 total emp change since 2008

The Investment Banking Sector’s Trouble

What’s behind the weakness in the investment banking industry? One main force appears to be most influential in the investment banking industry’s troubles.

The detrimental factor is the passage and implementation of Dodd-Frank in July 2010.  Interestingly, employment in the investment banking industry shows as clearly being adversely affected by Dodd-Frank.  In fact, employment in the investment banking industry was just about positive in July 2010.  Following passage, employment in the industry went south quickly.

Conclusion

Overall, private equity is in first place for employment growth (up 4.3 percent) among the three large investment industry sectors.  In second place is hedge fund employment (up 3.3 percent).  Last place belongs to the investment banking industry, still down 4.7 percent from where it was in January 2008.  Only time will tell if the investment banking industry will ever catch up with its finance industry cousins.

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