Talent and compensation flee to quality
The availability of senior top talent is decreasing as hedge fund investment professionals re-surface at other hedge funds, proprietary trading banks, asset management firms, and a host of other destinations, according to a survey by recruitment consultancy Heidrick & Struggles International.
Veteran hedge fund and markets professionals are also in demand at the Securities and Exchange Commission, where a promise of increasing government enforcement and the creation of a new division of risk, strategy, and financial innovation are leading to new hires.
According to the report, compensation bidding wars will return in 2010.
Claude Schwab, head of the US hedge fund practice and a partner at Heidrick & Struggles, says: “The post-TARP brain drain is turning around, with a significant increase in hiring at most large banks/proprietary trading firms. But comp will not reach levels prior to the summer and fall of 2008.”
New, “safer” investment vehicles are helping to drive the asset-building frenzy.
“Assets are coming back to funds, swayed by innovative, more transparent investment products that give more control and liquidity to investors,” says Schwab. “Marketing professionals who can sell these products will be key drivers of this activity as funds gear up for the best fundraising opportunity in two years.”
There will also be a re-emergence of seeding funds and a boom in new launches. Despite the number of funds closing in 2008 and 2009, launches exceeded liquidations were beginning in Q3 2009 and continuing into Q4.
Front office professionals in 2010 can expect to see compensation guarantees return in 2010, although this will be coupled with an increase in clawbacks and deferrals.
Heidrick & Struggles has identified eight characteristics of firms that are the most vulnerable to talent leaving.
Fund underperformance was the top factor cited in the report. Other factors making firms vulnerable include a lack of formulaic payouts to PMs; shared portfolios; traditionally centralized structures; firms where trigger-pulling responsibility has been pulled from individual PMs; “placeholder” firms housing talent from funds that shut down; those with lower capital (under USD1bn), except for more recent 2009 start-ups; and funds undergoing a significant internal event, such as a merger or acquisition.
The firms from which it will be difficult to pull the top people include those with strong performance and access to stable, sizeable capital. Other factors keeping talent put include well-run management that provides relative autonomy and a healthy, transparent work environment.
“It’s very difficult to pull a strong performer from a firm that has all of these factors in place. A true ‘game-changing’ opportunity is what it would take to lure the best professionals from such a firm,” says Schwab.
Examples of “game changers” include a very significant increase in capital allocation; sufficient capital to start one’s own firm; the opportunity to build a firm and/or be a key part of the firm’s succession plan; and the opportunity to serve a cause while investing.
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