“People Alpha” is key factor in hedge fund performance, says Citi
Hedge funds that invest in people management register higher average investment returns than their peers, according to a survey from Citi Prime Finance.
This concept of “people alpha” is the latest potential differentiator for managers in an industry that is becoming increasingly competitive and institutionalised.
The survey corroborates numerous other academic studies that have shown the connection between superior performance and an investment in an organisation’s people.
“Just as hedge funds once claimed ‘operational alpha’ as a differentiator, we believe that ‘people alpha’ will separate some firms from the pack and will soon become an industry norm,” says Sandy Kaul, global head of business advisory services at Citi Prime Finance.
To conduct the study Citi interviewed a diverse group of 24 hedge funds, each with at least USD500m in assets under management, and evaluated each firm’s practices by focusing on four key pillars – talent acquisition, talent retention, learning and development and performance management. For each of these categories, Citi developed a list of standard and market leading criteria and ranked firms using a 10 point scale, cumulating in a single “people score”’
According to the survey, the number of people working at the firm is the determining factor in their focus on people-related matters. Larger firms (+150 people) consistently outscored and outperformed medium and smaller sized firms. When there were similar sized firms such as those between 50 and 150 employees, those that fell in the bottom half of the study’s people score underperformed similarly sized firms in the top half by nearly 600 basis points between 2009 and 2012.