By Mush Ali, One Ten Associates – COOs are playing an increasingly important role within start-ups, as investors want to have in place an individual with the background to handle the complexity of regulation and governance. Mush Ali of One Ten Associates explains the main factors that should be considered when hiring a COO.
The COO hire in any start-up hedge fund is typically the first ‘non-investment hire’ the firm will need to make.
We have seen the evolution of the importance of this hire change from it simply being a ‘need ‘ to now being just as essential as having a high quality investment team. The track record and pedigree of the COO will be the first thing investors will question nowadays, once they are aware of the investment team and strategy of the business.
While the need for a well-regarded COO is key for a hedge fund launch, the accessibility to them is greater than it has ever been – from the traditional ‘headhunter’ approach to introductions through various networks/suppliers that exist in the sector.
We recognise this hire can be difficult to make, since the person responsible for assessing the skillsets of the COO has invariably always hired investment professionals but has rarely been involved in hiring a non-investment individual. Therefore, assessing the relevant skillset of the individual can come with challenges.
The purpose of this article is to provide some specific guidance on the thought process required when considering a COO while recognising that this hire is ultimately individual to the situation of the start-up; so there is no one right answer to the hiring of a COO
Three key areas to consider when thinking about hiring the COO:
1. Size of the fund launch
This will determine the nature of the COO required
• Less than a USD100m launch needs more of a head of operations/COO – that can roll up the sleeves and multi-task in the role
• Greater then a USD100m launch needs more of someone with a track-record in managing relationships and people
• Greater than a USD250m launch will typically want to attract someone from a larger hedge fund as the launch will need that type of pedigree to cope with the complexities of this size of launch
2. What skills are required?
The COO will typically need knowledge in finance, tax, operations, compliance, technology and legal.
There is a perception that the COO needs to be a qualified accountant, the rationale being that investors feel comfortable with a COO who is professionally qualified to create a strong control environment. The validity of this is split across the industry, and in essence there is no wrong or right answer to this view.
We always advise fund managers to think about the skills/knowledge that can be missing in the current team – typically the answer is to cover everything on the non-investment side. This makes it hard to narrow down on the type of background that is required.
Some good questions to address in order to narrow down the type of employees a start-up fund manager should look at:
• Do I need to set up complex systems?
– If yes, a more technology-savvy COO is needed
• Is middle office-across operations and NAV production-the biggest worry?
– If yes, someone with pedigree in dealing with middle office is needed
• Is there a strong need for in-house knowledge on the legal, compliance, tax & finance side, or can we outsource this advice?
– If yes, a qualified accountant/lawyer is the best place to find this broad skill-set.
Addressing some of these key issues upfront will help in assessing how relevant the background of the COO is to the start-up.
The up side is that the talent pool for COO skillsets has matured over the past ten years to ensure start-up fund manager now have the ability to be more specific about what they want.
Our advice has always been: the more specific the fund manager can be about this need, the easier it is narrow down the potential employees, ultimately saving time and reducing the confusion around what the right hire for the business is.
3. Using specific benchmarks to assess the quality of the COO
This does not always tell the full picture but it can be used as a differentiator if you are up against a close decision between individuals. But in our experience it should never be the only factor to consider.
The firms individuals have worked for in the first five years after university invariably define their mind-set and approach as they progress through their career. On top of this, assessing their current roles and organisations is a natural place to create judgements on the skillset of an individual.
It should be stressed that when thinking of this hire it is unrealistic to expect it to solve all the needs on the non-investment side-invariably COOs will always need a small team around them to ensure all core areas are appropriately controlled and managed.
The hiring of a COO of a start-up fund can be the hardest hire to make, because a unique mixture of skillsets is needed, which will always be individual to that particular start up.
As this hire will also be critically assessed by the investors, it is imperative that the fund manager spends time structuring the thoughts around what factors they want to focus on when considering this hire for the firm – after all, a lot of time will be spent working very closely with this individual.
Mush Ali is Director at One Ten Associates – a specialist hedge fund recruitment firm. He qualified as a chartered accountant before starting his career in recruitment nearly 10 years ago. He is an experienced specialist in this sector, his expertise lies in finding ‘non-investment’ talent for the hedge fund industry and service providers.