Headhunters in Hong Kong say hires in the regionÆs asset management industry have come to a halt, and expect to see layoffs and reduced packages for salespeople, investment managers and back-office executives. The distribution side will be hit harder.

The good news is that the pain in asset management will be relatively benign compared to that in private banking and investment banking. There do remain some niches where hiring continues, but only for very specific candidates.

The problem for now isnÆt that firms arenÆt hiring; the bottleneck is at what price. Since Lehman BrothersÆ collapse, candidates who have been offered positions have dug in their heels, refusing to leave without extra compensation, because they donÆt have faith that a new institution is going to survive.

ôAm I going to get someone in trouble if I recommend they take a job, when you donÆt really know if itÆs safe?ö wonders one headhunter.

Companies, meanwhile, expect they can get experienced people on the cheap, so the gap between what theyÆll pay and what candidates will accept has widened in the past few weeks. And because weÆre entering the fourth quarter, more employers would rather wait than have to immediately pay their new staff a bonus early next year.

There have been some exceptions. Sources report a few big hedge funds have added people in the past few weeks, including the likes of Eaton Park and SAC. But most hedge funds expect to be hit by further redemptions and are either putting plans on hold or closing, and headhunters say many are quietly trimming staff.

This purgatory has been extended in part because of the generous pay packages given to Lehman BrothersÆ Asian staff by Nomura. Nomura bought the regional business at such a knock-down rate, that it was willing to guarantee bonuses next year at 2007 levels, as well as a bonus in 2009 at next yearÆs level.

Moreover, in asset management, there hasnÆt been the bloodshed seen in investment banking. In Asia, many houses are quite lean, with just a few salespeople and perhaps an investment management team.

This is going to change, however. HSBC has already announced layoffs in areas including asset management marketing, product development and multi-manager. The number of redundancies is not yet significant û but will it get worse?

Headhunters warn the next place to see blood will be distributors. The Hong Kong minibond fiasco, in which supposedly safe products lost everything because Lehman was the counterparty, has brought Asian retail markets to a halt. Banks arenÆt selling funds, structured products or equity-linked notes. ôThe numbers are awful and weÆll see layoffs in two or three months,ö predicts one headhunter.

Once redundancies commence, then more people will be willing to accept cuts to packages. Portfolio managers have seen their funds lose 30-40% of value this year so few have a track record they can boast about, so they will either not look to move jobs, or would have to accept a reduced package. Headhunters suggest some fund houses may use this as an excuse to upgrade, pruning the worst-performing managers.

But employers donÆt necessarily hold the cards right now. Any asset manager tied to an investment bank or private bank will find it hard to add people if itÆs slashing jobs elsewhere. And while more fund managers from America and Europe are keen to enter Asia or build existing business, their home markets are a mess; they wonÆt be able to pay a premium for talented people.

Headhunters say they have plenty of mandates to find people, but suspect many of these are tendered by firms that want to project an image of strength but in reality have little intention to actually make a hire. And they have piles of CVs from experienced people in New York and London û but without Asia experience, they donÆt bring the right skill-sets to the table, while firms in Asia have learned to be wary of hiring from overseas.

There do remain some pockets where the right candidate can get a good job, notably as country reps in Beijing or Shanghai. Once markets stabilise, the Chinese and Indian growth stories will drive hiring again. More Asian fund houses are setting up in Hong Kong, including the likes of KoreaÆs Samsung Investments or Mirae Asset, but also mainland Chinese fund houses.

But hiring is unlikely to escape from this logjam until markets stabilise and, for investment managers in particular, people have time to re-establish track records. The gap between what companies will pay and what talented people will demand is going to remain a problem until layoffs become widespread. Fortunately, the asset management industry is a lot more stable than i-banking. But it is not immune; there will be blood.