On the whole, employment in the U.S. has done quite well over the past few years. Unless some massive revisions occur in the months ahead, it is likely that 2015 will be the fifth year in a row of above-2 million job growth for the year.
Such broad strength poses the question – how did the financial industry do? And, how did the various components of the financial industry, such as private equity, investment banking, and hedge funds, perform compared to one another?
The next two sections take a look.
The Broad Financial Industry View
First, a look at the broadly defined financial industry jobs picture.
The industries with the largest gain in employment were Education & Health, up 665K for the year, followed by Professional & Business Services (up 605K), Trade, Transportation, & Utilities (up 445K), Leisure & Hospitality (up 419K), and Retail Trade (up 274K).
Finance shows up about in the middle, with total employment in 2015 up 147K compared to where it was at the end of 2014.
Middle of the pack – not too bad, not too great.
The Investment Banking, Private Equity, and Hedge Fund Industry Employment Picture
Now, shifting to a look at 3 of the large component sectors of the Financial industry – investment banking, private equity, and hedge funds. Before looking, which industry – private equity, investment banking, or hedge funds – would you guess did the best in 2015?
Interestingly, the winner is the private equity industry. In 2015, the private equity industry added an amazing 8% to its employment base. Not far behind the private equity industry was the hedge fund sector, adding a little over 7% to its employment base. In last place – the investment banking sector, adding just 0.3% to its employment base.
What’s behind the weak performance of the investment banking sector? Why was it such a laggard in 2015?
A couple of general reasons.
First, in contrast to the the private equity and hedge fund sectors, the investment banking industry is heavily regulated. And, with the investment banking industry under pressure from Dodd-Frank, it’s completely unsurprising that the investment banking industry would be somewhat nervous about expanding its employment base.
Second, investment banking business conditions are weaker. Private equity and hedge funds continue to see cash inflow (at least for the time being), while the investment banking industry saw weaker than expected trading and equity dealflow. These two put downward pressure on revenue and profits.
When comparing financial industry employment growth to the economy as a whole, the performance of the financial industry comes in about in the middle, having added about 170K new jobs to its employment base.
When shifting to a look at how the investment banking industry did against the private equity and hedge fund sectors, the picture is not as positive for the investment banking sector. In 2015, the investment banking industry only grew about 0.3%, compared to 8% and 7% for the private equity/hedge fund sectors, respectively.