Slush, slash and slosh

Times have been tough since that disputed GFC. The top 40 hedge fund managers only got $10.5 billion in fees and bonus payments and the highest paid only took home a little over a billion.

Their success has come with a worldwide cut in finance and corporate sector jobs, with hundreds of thousands of positions being slashed to deliver margins to the fund managers. More than 400,000 jobs have disappeared in the last year and the trend is continuing. 

This pattern of big-end slash is becoming apparent in Australia with pleas for government subsidy slosh for carbon tax, car companies and even cement manufacturers.

The reality is starting to sink.

The Australian public sees a weakened government besieged by large corporations that have found that cutting jobs and increasing political slush funds gets the media support required to override broader support for small and medium enterprise. Smart companies are being constrained whilst the hedge funds and speculators are rewarded.

Traders in energy, metals and agriculture are opening or joining hedge funds after leaving financial firms that cut more than 233,000 jobs this year, Bloomberg data shows.

Departures of commodity traders from banks probably rose 10% this year, according to recruitment firm Commodity Search Partners. That group’s pay will drop 24% on average, estimated recruitment firm, Options Group.

At the same time, hedge funds are sloshing in liquid assets seeking speculative targets for more transactions.

Commodity hedge funds attracted $8.66 billion from investors last year, up 11% from the end of 2010 and above the hedge fund industry average of 1.9%, according to eVestment|HFN. It estimates that assets under management at commodity funds rose $4.95 billion to $82.7 billion.

George ‘Beau’ Taylor, the 41-year-old former head of global commodity proprietary trading at Credit Suisse Group, started a hedge fund in February. It now has more than $1 billion in assets, a person with direct knowledge of the matter said. Gil Saiz, the 36-year-old who spent a decade at Goldman Sachs Group closed his Vector Commodity Fund to new investors in May after raising $600 million, two people with knowledge of the matter said.

Bank of England governor Sir Mervyn King, US Federal Reserve chairman Ben Bernanke and our own Glenn Stevens do not expect much employment growth this year, but do not see the need to help small and medium enterprise to expand. The central banks accept that big corporations have more than enough funds on hand to meet their needs and see no reason to print any more funds to add to the hedge fund slush funds.

Smart companies need to watch who Julia Gillard appoints as small business minister in the reshuffle to get a glimpse of the economic policy changes she and Wayne Swan intend to introduce along with the surplus he has to have.

If we see the return of the big end of town subsidising ex-industrial union leaders then expect a rise in the price of gold, no further reductions in interest rates and stagnation in the equities markets.

Alternatively, if we see a committed new Cabinet with a strong small business minister, employment expansion policies and support for regional and community development, it will be time to plan for growth.

There is no shortage of funds in the private sector for import substitution and local innovation once there is a greater level of business and consumer confidence.

 

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