A Hedge Fund Hiring Feast

September 8, 2008

By Katherine Heires
-- Article taken from Securities Industry News

Hedge funds with the means to hire experienced talent are taking advantage of budget cutbacks at investment banks. Larger funds are scooping up trading and middle-office personnel at compensation rates far less substantial than a year ago, according to recruiters.

While traders with proven track records continue to command top salaries, recruiters report that the days of guaranteed compensation packages may be over. And new hires in the middle office are getting, on average, no more than a 10 percent boost in earnings or are being brought on at the same level as their previous position.

The hiring activity is also highly targeted, with funds zeroing in on traders, portfolio managers, analysts and researchers with expertise in specialized areas such as distressed investing, oil- and gas-related strategies, infrastructure-focused investments and asset-backed lending.

"There is a lot of hiring going on in the hedge fund space at this time--far more than usual," observes Tiffany James, consultant at Michael Page International, a New York-based recruiting firm with offices in 28 countries. "But I find that everyone is going forward with market-specific and sector-specific skills, whether it's distressed guys with restructuring backgrounds or oil and gas specialists."

"We are seeing a hiring feast for hedge funds right now," says Isabel Schauerte, London-based analyst for Celent. "And because we are also seeing a golden age for distressed investments, many people with expertise in this area are shifting over from investment banks to work with hedge funds."

Brian Grover, founder and managing partner of Broadreach Group, a hedge fund and sell-side recruitment firm in New York, sees increased hiring activity in "mortgages and distressed credit areas, with opportunities for traders, researchers and analysts who know this stuff well, including those with knowledge of the mortgage origination business." That, says Grover, is where a number of hedge funds are shifting their focus this year. "Funds are looking for people who have engineered deals in the mortgage arena, for example, know these deals well and can reverse-engineer this stuff," he adds.

*Managing Risk, Raising Capital*

Because some funds have been successfully employing macro trading strategies, Grover says there has been a fair amount of hiring in that area. There is also interest in investment bank employees with capital-raising, business development and client service skills.

"There has always been a migration of individuals from investment banks over to hedge funds to help in building up their capital-raising groups," explains Grover. "While there is not a big pickup at this time, there has been some movement over the last couple of months with hedge funds looking for people who can help them move the needle."

Growing hedge funds have also developed a need for risk management, marketing proficiency and all the operational know-how associated with a full-fledged asset management firm, according to Andrew Saunders, managing director of Hedge Connection, a Web-based capital introduction platform for fund managers. "Several of the larger hedge funds are in a position to afford high-quality talent" and are pursuing that goal, notes Saunders.

Recruiters say that although the hiring trend got under way around August 2007, it really gained steam after the Bear Stearns debacle in March. Since then, there has been a steady stream of talent flowing from the banks into well-known funds such as Chicago-based Citadel Investment Group, CQS Management and GLG Partners in London, New York-based DE Shaw & Co. and Tudor Investment Corp. of Greenwich, Conn.

This summer, Citadel added three senior executives from JP Morgan Chase & Co. and six Merrill Lynch & Co. staffers to its Asian distressed debt and special situations team, and Tudor snagged two distressed-debt veterans from Bear Stearns to start a new credit group. CQS has bulked up in 2008 with 45 new employees, including trading and risk management alumni of Barclays Capital and Lehman Brothers, and last week, DE Shaw said it nabbed Lehman's former head of securitized products to lead a new asset-backed securities unit.

However, recruiters caution that, feverish activity at select funds aside, job opportunities for former investment bank employees remain limited. Nonetheless, hiring levels at hedge funds are relatively high and expected to remain so into the fall.

According to eFinancialCareers, a global job-search Web site, postings for positions at U.S. hedge funds in the second quarter were up 38 percent from second-quarter 2007. Equities job listings rose 8 percent over the same period while commodities postings increased 32 percent and derivatives jobs declined by 30 percent. The number of applications submitted to eFinancialCareers for hedge fund jobs was up 135 percent from last year.

Investment banks, meanwhile, are contending with the impact of massive subprime-related write-downs and continuing to shed jobs. Statistics issued by New York Governor David Patterson's office show that layoffs in the state's financial services sector are expected to reach 35,000 this year, or 6 percent of the total; bonuses are predicted to drop 20.5 percent. Global banks have cut more than 100,000 jobs--2.4 percent of the worldwide work force--since January 2007, according to Bloomberg data.

Bankers that move over to hedge funds aren't quite cashing in like they did before. "While a year ago, you would have needed to offer a significant premium to a current package-30 percent to 40 percent more-today that premium would be quite a lot less," notes John Benson, president and founder of eFinancialCareers. "To get a guaranteed package these days, you have to be a top-tier trader or extremely specialized," adds James of Michael Page.

The good news, of course, is that there are still jobs. James points out that despite the overall poor returns for the hedge fund industry--equity long-short funds, for instance, were down 4.17 percent in July--those using more timely strategies are still generating profits. "The guys who have focused on credit and are doing well want to get other guys on their team who know the sector," she says.

According to Benson, it has become far easier for funds to lure people away from banks. "If you're at an investment bank today, the environment is less secure than it was a year ago," he states. "People there are seeing bonus expectations far lower than in the past and companies are cutting back on expenses." Banks also have a considerably reduced appetite for risking their capital on the prop desk, notes Benson. For traders, that means less of the firm's money to trade and less of an opportunity for profits. "Lower appetite for risk at the banks is certainly a reason why hedge funds are becoming more attractive to traders," he says.

And the emergence of publicly held hedge funds is also changing the game, as they find themselves able to offer the sort of packages that the banks extended in sunnier times. "That's why hedge funds are going public--to compete and lure talent," says Hedge Connection's Saunders.

Will the hiring wave continue? "While the headlines in the securities industry are doom and gloom, in the hedge fund business, recruitment activity is continuing in the U.S. and, to some degree, in the Middle East and Asia for now," says Benson.

Adds Saunders: "I think that the large, top-performing funds will continue to hire this year to build up their businesses. Some are starting new business lines and are looking with interest at a whole lot of talented people who have been working at the banks."

 -- Katherine Heires (www.mediakat.com) is a freelance business and technology journalist based in New York.

Contact:

Max De Paola
Michael Page International
203.905.5253