Hedge funds say securing the best expertise is growing tougher as more new entrants join the industry, with multi-strategy platforms and larger managers ramping up recruitment and economic turmoil squeezing the sustainability of some firms…
Hedge funds say securing the best expertise is growing tougher as more new entrants join the industry, with multi-strategy platforms and larger managers ramping up recruitment and economic turmoil squeezing the sustainability of some firms…
More hedge fund managers believe the current recruitment environment has become tougher in the last 12 months than those who believe it has become easier, new Hedgeweek research shows, as the ‘war for talent’ in the industry continues.
A quarter of all hedge fund managers believe the current environment for hiring talent has become more competitive over the past 12 months, while 7% of managers surveyed now believe the market is less competitive (Fig 1.1). When those who hold no opinion on the hiring landscape are removed, about one-third of hedge fund managers say hiring is ‘more competitive’ than this time last year. Slightly fewer – about 31% – said conditions are ‘similar’, while just over 9% said it was ‘less competitive’.
Industry participants observe how people are not only moving within the hedge fund space from firm-to-firm – they are also migrating elsewhere within the alternative assets sphere, along with the broader investment management sector, as well as areas such as fintech and digital assets.
“There are the multi-managers, and other cross-asset multi-asset firms within the hedge fund world where people are going. Hedge fund analysts are also looking more broadly across finance, to other asset managers, credit firms, and private equity. Family offices and sovereign wealth funds are also in that bucket of investing seats outside of hedge funds,” Anthony Keizner, partner at Odyssey Search Partners, says of the busy flow of traffic across the industry this year.
New hedge fund talent flow data generated by Hedgeweek Vision shows the number of entrants joining the hedge fund industry reached 862 in July, outweighing those who left the business for a non-hedge fund firm (250), while there were 114 moves from firm-to-firm (see Fig. 1.2).
Problem-solving
Managers are looking to strengthen expertise across all departments (see Fig 1.3), with demand for investment office and operations expertise particularly strong among large $1 billion+ managers, while investor relations and sales talent are sought by managers of all AuM sizes.
“There’s definitely movement between the different areas of alternatives,” says John Hindley, partner, financial services at Heidrick & Struggles. “If someone is, for instance, a fundraiser but they have credit experience, they can be attracted from the hedge fund space to work for a larger alternatives platform. Those three areas – fundraising, technology, and legal and compliance – remain very interesting areas, and where we see high levels of activity.”
Phillip Chapple, chief operating officer, Monterone Partners, observes how technology has emerged as a key skillset as managers lean more into tech-based functions such as alternative data, while the constantly-evolving regulatory landscape increasingly calls for greater legal and compliance expertise within firms.
“What it really comes down to, at the crux of it, is having a problem-solving mentality,” Chapple tells Hedgeweek. “This industry is never in a state where it’s just business-as-usual, it just doesn’t happen anymore. Things are not static. So the view is that things are changing, there are problems, how do we solve them? Our strategy is not so tech-dependent, because we are more thesis-driven. But we still use alternative data, so it becomes important. There’s tech, there’s reg, there’s ESG – it’s all part of the same issue. Those are the skillsets that we are seeing demand for.”
Reflecting on the competitive hiring landscape, Anthony Keizner says: “It’s incredibly competitive at the junior level, because the kinds of people that hedge funds want to hire who typically come out of investment banking programmes, or out of private equity associate programmes, are the same kinds of people that are in demand across the economy, including the corporate world and the tech world.
“A smart, well-trained, financially-literate, savvy young person who’s willing to put all the hours necessary into their work is something that is very attractive to a large number of firms. This then further increases the difficulty of hiring those people, and increases the cost to hire them. We only see these costs go up – and this year is no exception.”
Prestigious
Meanwhile, this year’s ongoing economic turmoil – which has dealt sharp losses to many hedge fund managers, and left the industry down around 5% in the first half of the year – is now raising major questions surrounding staffing and talent among some managers weathering the sustained dislocation.
Keizner – whose firm which works with both large brand-name hedge funds as well as smaller start-up names, with a particular focus on fundamental equity and credit strategies – suggests the sharp decreases and negative returns suffered by many funds this year is “pushing the sustainability of some of these firms, frankly.”
“It may mean returning outside capital, and converting to a family office, and so there are many people at those firms – the junior and senior analysts – who are considering their futures right now,” Keizner says.
Expanding further, he adds: “While the hedge fund may have been among the most sought-after and prestigious places to have an investing career, and those people may still get a good bonus, the bonus is not looking like it’s going to be as high as bonuses have been in recent years. So those people are much more open to switching seats to something that is either larger and more institutional – even a long-only – that they may not have considered before, or to a market neutral fund or multi-manager platform. Those firms are using this opportunity to bring on people who otherwise may not have looked at them under different situations.”
Against this rapidly-evolving and increasingly-uncertain economic environment, large established hedge fund firms and multi-strategy shops are now ramping up their talent-finding efforts.
Reflecting this push, four of the top 10 hedge fund firms by net new hires in July were multi-strategy specialists, according to Hedgeweek Vision data (see Fig 1.4), as industry participants note how multi-strategy, multi-manager firms based around the ‘pod’ model have become increasingly attractive destinations for portfolio managers and traders looking to avoid the formidable costs, capital-raising and compliance challenges associated with launching a start-up firm.
Recent years have seen significant growth in the multi-manager and multi-strategy models, which has motivated firm leaders to attract and hire talented portfolio managers, says Aaron Steinberg, head of prime services sales and capital introductions at Pershing.
Steinberg says: “The financial, regulatory and resource commitment required to launch a fund continues to increase, providing multi-manager and multi-strategy funds an advantage in recruiting portfolio management talent.”
“The level of sophistication, and the resources they have available – not just technology or access to the sell side but coaches and psychologists and things of that nature – make the platforms very compelling propositions,” Hindley says of the large multi-strategy shops. “There is still definitely hiring outside of the platforms, and the way the platforms run money doesn’t always suit every portfolio manager. But there’s always some kind of bid for good talent from the platforms – whilst it’s certainly challenging to work within those organisations, and I think everybody would agree they can be pretty tough environments, the rewards are huge.”
At the same time, large established brand-name managers also continue to fuel the industry talent flow, with firms running more than $10 billion in AuM making up nearly half of all hedge fund hires in July (see Fig. 1.5), as Brevan Howard, the long-running macro behemoth, expanded its talent-finding capability in July with the onboarding of former Heidrick & Struggles recruiter Harry Simons, who is tasked with sourcing portfolio managers for the firm’s global macro effort.
Next level
In contrast, at the other end of the spectrum, smaller and emerging hedge funds and start-up firms have to contend with a different set of challenges, particularly when it comes to business development and capital-raising, which makes their staffing needs markedly different from the larger established names.
“It’s long been appreciated in the hedge fund industry that the people who do a fantastic job of launching start-ups, and getting them to critical mass and to a point of success, are not always the same people that can then take those businesses to the next level,” Hindley observes.
“It may be that hedge funds have to recruit very differently when they’re at $1 billion and trying to get to the $5 billion level compared to the early days when they are trying to get from nought to $1 billion.”
Elsewhere, George Ralph, global managing director & CRO at RFA, notes many firms continue to outsource certain functions where they can. “We are seeing firms also opt for part time roles as well as performance and equity linked remuneration structures. Some firms are offering fund performance shares to service providers to help with working capital retention.”
Looking ahead, some see building specialist expertise in investable strategies that are hard to replicate as key to career advancement.
“When a directional hedge fund is basically long the markets, an ETF or a passive investor is able to get similar return streams with fewer fees. As a result, there will likely continue to be lower demand for these kinds of hedge fund investment types,” Keizner says of the prevailing industry outlook.
“However, strategies like public-private hybrid strategies, credit and distressed strategies, arbitrage strategies, market neutral investing – these are not things that retail investors have access to. Those things are where hedge funds have an advantage, have value to offer, and so those are the kind of areas that I see more investment going into and people most successfully building their careers as away from the kind of firm that was seen as very attractive over the last couple decades – the concentrated, long-bias type firm.
“Those areas – anything to do with flexible capital, capital solutions, where they can do equity or credit and be opportunistic in investing – is very hot from an investor point of view, and among the most competitive places from an employee perspective. Strategies that don’t fit into the mould as we have traditionally defined them, but because they are able to be opportunistic and find where there is dislocation, whether it’s in real assets, or in credit, or in equites, rather than being defined by one strategy or approach, is cerebrally interesting and they are getting returns over time, which investors ultimately want.
“The bulk of firms being, for instance, traditional long/short equity is not a bucket that’s going to be as relevant going forward.” 
