Wall Street has fallen on hard times, but many predict it will come back.
Wall Street has fallen on hard times, but many predict it will come back. Mark Lennihan/AP
The past two years have been rough ones for a lot of Wall Street firms, when the fat times suddenly ended and profits slipped away.
To make sure they are better prepared next time, firms are turning to people like Damian Handzy, CEO of Investor Analytics, a New Jersey-based firm that specializes in risk management.
"I help people understand what type of risks their investments are exposed to, and more importantly, how to mitigate those risks," Handzy says.
The firm develops highly complex computer models that help institutional investors like hedge funds and endowments determine how risky their portfolios are — or, in other words, what might happen to their assets if, say, interest rates fall and oil prices fall.
As the financial markets improve, many firms are putting more money into better risk management models, and firms like Handzy's are seeing a sudden upturn in business. In fact, risk management is one of the few corners of Wall Street that is hiring these days.
Cutting The Fat, And The Toxic
The financial services sector employed 8.3 million people at its peak in December 2006. Today it is down to about 7.6 million, according to the U.S. Bureau of Labor Statistics.
Many of those jobs will never come back, especially in controversial areas like structured mortgage finance.
"If you sold a product that became toxic, that developed a bad reputation, you're going to have a great deal of trouble getting another job," says Richard Lipstein, managing director of Boyden Global Executive Search.
Even if you worked in one of the less tainted corners of the financial world, it's still a highly competitive job market, says Benjamin Poor, director of institutional practices at Cerulli Associates, which analyzes the financial sector.
Many Wall Street firms hired too many people during the boom and are afraid of doing so again, he says, so they're trying to make do with fewer employees.
A Thaw On The Fringes
Still, some hiring is taking place along the fringes of Wall Street, Poor says.
Big firms like the bond giant PIMCO are beginning to expand. A lot of smaller firms — especially privately held companies with more freedom to hire whom they want, without worrying about shareholders — are also looking for new people, and they're finding a glut of highly talented candidates to choose from.
"We talk to, on a regular basis, people in the industry, some of whom have 20 years' experience, and they're not just average Joes, but they're really talented individuals," Poor says. "And when that type of talent is available you've got to be able to take advantage of that talent and bring it into your firm."
On Wall Street, where talent is critical, being able to hire highly skilled people puts a firm at an enormous advantage and leaves it a lot better positioned for the next upturn, he says.
The Next Boom
And Roy Smith, professor of finance and entrepreneurship at New York University's Stern School of Business, says there is no doubt about it — Wall Street will come back. The financial markets have been through a number of downturns, but each time someone came along to invent something, such as derivatives or securitization, that helped lead to a new boom.
"Wall Street lives in an environment of bull markets and bear markets, expansions and contractions," Smith says. "For at least the last 50 years or so, every time there's been a slowdown the businesses have expanded in its wake, and, indeed, have way expanded what the businesses were at before."
Where might growth come from next time around?
One possibility is wealth management, or helping well-heeled investors figure out what to do with their money, says Lipstein. A lot of people tried to manage their own assets during the boom, only to lose a lot of money when the crash happened, and they are now more willing to leave their portfolios in the hands of professionals, he says.
Another potential growth area is green technology, says Smith. If alternative energy really does grow as much as some people expect, Wall Street will need people to bring the new companies to market and analyze their profit potential, he says.
"This will require a new kind of beefing up, much like what took place in the computer and telecommunications sector in the 1990s," Smith says.
Still, no one can see over the horizon, and by their very nature, booms are hard to predict. All that's clear is that when the next one arrives, some people will grow very rich, and in the process a lot of new jobs will be created.