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Thorny hedges will burn your bridges

Is now a good time to join a hedge fund? And if you do, will it be difficult to move back to banking if things go wrong?

Search consultants we spoke suggested the answer to the first question is "no," and to the second, "yes."

Despite recent successful deals such as Morgan Stanley's acquisition of Pillsdown Partners in the UK, it seems mud sticks. After events such as the loss of $6bn at US-based Amaranth Partners, consultants are warning that the hedge fund industry is losing its lustre.

"The hedge fund industry has had a horrible year. Amaranth was only the tip of the iceberg," comments Nick Lord, a principal of recruitment firm Heidrick & Struggles in Hong Kong. Lord predicts an outflow of hedge fund specialists back to investment banks in the coming months.

Another consultant says things are set to get worse: "There have also been lots of dodgy dealings in the way hedge funds have used their clients' money. This will become apparent as the sector experiences a downturn."

A similar phenomenon existed during the dot com boom up to 2001, with an exodus of bankers into the companies they had helped list. After the bubble burst, they then faced a difficult scramble to get back. Many of them did not make it until several years later.

"With the trend for firms choosing younger staff, professionals will find it more difficult to go back to their firms and take up where they left off," comments Simon Osborne, a former banker in Hong Kong. Osborne predicts analysts and back-office people will face an especially difficult time.

All is not gloom and doom, however. Unlike during the dotcom collapse, the broader market is very buoyant. That should help hedge funds refugees find a safe haven.

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