Amid a slump in trading volume, hedge funds are looking to aggressively cut costs on their trading desks, says new research by Greenwich Associates.
The firm reports that its study of 232 traders at a variety of buy-side institutions (including hedge funds, asset management firms, pensions, banks, and others) found that 44% of hedge funds said their 2012 trading desk budgets have been cut compared with last year; approximately 40% report flat budgets and the rest report increases.
Greenwich says that the results suggest that hedge funds are moving much more aggressively than other types of institutional investors to adjust the size and cost of their trading desks in response to a general slowdown in securities trading activity.
While almost half of hedge funds report budget cuts, only about 20% of institutions overall say their 2012 budget was reduced from last year, it notes. About half of the institutions surveyed said their budgets were unchanged, and another 30% report increases.
Greenwich says that some of the institutions that are increasing their trading desk budgets are making up for cutbacks made during the global financial crisis, whereas others appear to be responding to changes in market structure, including: increased use of direct-market-access trading, which has shifted execution responsibility from the sell-side to the buy-side; the growing availability of innovations, such as algorithmic trading strategies and dark pools; and, a reduction in trading resources by sell-side firms in response to the slowdown in trading activity and increasing capital requirements.