Credit Traders Flock to Hedge Funds as Banks Keep Lid on Pay

Credit traders who feel stiffed after a banner year are finding a hot market for their services.

Hedge funds fresh off their best performance in years are aggressively hiring, recruiters say. Banks including Barclays Plc, Goldman Sachs Group Inc. and HSBC Holdings Plc have suffered senior defections to the buy side in recent weeks. Barclays has tried promotions and pay promises to stem defections.

“Whoever writes the biggest check is the winner,” Jason Kennedy, chief executive officer of U.K.-based recruiting firm Kennedy Group, said in an interview. “There is no loyalty left.”

While spring moving season is nothing new on Wall Street trading desks, observers say star performers in the world of corporate credit are in particularly high demand. Adding to the turnover is discord after banks that saw trading revenue surge in 2020 kept a lid on pay because of struggles in other parts of their business. Hedge funds are trying to follow up a divisive period of pandemic-driven earnings with new strategies that benefit from outside expertise.

“This year, they have targeted the credit space,” Kennedy said. “That’s why the market is moving so much.”

The pressure has been felt at HSBC, where a swath of senior traders left the U.S. business in recent months as the bank restructures operations in New York and around the world. At least 10 traders are leaving the credit desk, and a spokesman has said the group was actively hiring.

Credit Traders Flock to Hedge Funds as Banks Keep Lid on Pay

​At Barclays, departures from the credit desk have included Ovie Faruq, director in U.S. high-yield cash and derivatives trading in New York; Shrut Kalra, head of European investment grade trading; Taymour El Chammah, global head of macro credit trading; and John Cortese, co-head of U.S. credit trading. Several are joining hedge funds.

In response, the London-based bank has offered some of the team promotions and assurances about future pay. However, the tone at the top is one of caution on costs. CEO Jes Staley increased bonus accruals across the bank in the first quarter, but has said that this spending “is a very controllable number so if our performance weakens we can take it right down again.”

Goldman’s head of European macro credit trading Jasdeep Singh Aneja is leaving to join hedge fund Millennium Management.

“Hedge funds are hot, they have had a good few months and they’ve raised a tremendous amount of money,” said Alan Johnson, managing director of the Wall Street compensation consultancy Johnson Associates. “If you’re a trader, they’re an attractive destination. They’re real competition for the really good or the really great traders.”

Credit trading was a boon for investment banks last year as the pandemic sent bonds on a roller coaster. The trading desks buy and sell bonds and loans issued by corporations and also deal in derivatives linked to their financial health.

A record $39 billion of U.S. corporate debt changed hands on average every day last year, helping the biggest banks generate the most credit-trading revenue since 2013, according to data from the Securities Industry and Financial Markets Association and Coalition Development Ltd.

Credit Traders Flock to Hedge Funds as Banks Keep Lid on Pay

Hedge funds are also pursuing these gains. Oaktree Capital Management this week teamed up with investment manager Schroders to launch a global multi-strategy credit portfolio.

The strategy is not without its risks: Earlier this month a slew of hedge funds took out short positions on European bonds they saw as overstretched.

The turnover “isn’t specific to credit,” and traders have been on the move for some time, said Ilana Weinstein, who runs Wall Street recruitment firm IDW Group LLC.

“Migration of sell-side to buy-side has been happening since the crisis with disappointing bonuses, cost-cutting and reduced ability to take risk at the banks,” she said. “The question is why someone is still sitting on sell-side if they want to be in a risk-taking versus franchise trading seat. I would argue much of the best trading talent left long ago.”

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