A panel of recruiters gives its assessment of typical NY pay packages for portfolio managers at hedge funds. Entry-level salaries of $100,000-$150,000 are the norm with bonuses incentive-based. Many hedge fund managers earn $3m a year, and some are on $10m.
'The amount of money that is chasing good hedge fund people is breathtaking,' says Georges Holzberger, a partner at Sextant Search Partners in NY. 'Everybody is looking for proven portfolio managers, and institutional money continues to flow into this space.'
Sextant currently does about a third of its search business with hedge funds; it works for some of the multi-billion dollar players in the hedge fund industry but also the smaller ones, with some $100m-$200m in assets, that are expected to grow substantially.
At entry level, Holzberger says pay for those managing a fund depends on how much responsibility for execution they have. An analyst can earn a base salary of $100,000-$150,000 plus a discretionary bonus, but some senior analysts are virtually portfolio managers because of the amount of discretion they have in their industry or sector.
'Technically, they might be upstreaming their best ideas to the portfolio manager,' Holzberger says. 'But if an analyst is basically a trigger-puller him- or herself, the compensation level can rise to seven figures.'
Much of the compensation at hedge funds has been and remains formulaic, particularly at the huge multi-strategy funds with over $5bn in assets.
Dee Dee Ricks of Ricks & Ray Partners works mainly with such funds. Ricks & Ray is a specialty search firm that focuses exclusively on helping clients develop multi-strategy hedge fund businesses. Ricks says, 'Some firms now are trying a slightly different form of compensation - it could be 25% on the firm's performance and 75% on desk-participation, or the performance of the portfolio.'
Ricks has been in the recruiting for hedge funds since 1994, but until 2004 her firm was known as the Ricks Consulting Group. 'Absolutely everyone seems to want to switch over into (working for) hedge funds because of the unlimited earning potential, which can be based solely on your own performance - also known as 'eat what you kill,' she says.
The average placement fee at Ricks & Ray is north of $750,000, which is a third of the candidates' first year compensation. The firm mostly places portfolio managers within quantitative and fundamental strategies.
So what is the required skill set for a good portfolio manager at a hedge fund? The answer is stark. 'A track record of performance,' says Ricks. 'We look for individuals whose returns have been north of 15% for two consecutive years.'
With so many funds popping up, experience is at a premium. 'Whether you are a big multi-strategy fund manager or not, increasingly you have to make judgement calls on people who don't necessarily have the track record,' Holzberger says. 'For every two or three who may be stars, a multiple of that will turn out to be average performers at best. Making the right pick up-front will save a lot of time but is increasingly challenging.'
Aspiring hedge fund managers tend to be in their mid-late 20s and extremely bright. They might be on proprietary trading desks on Wall Street, analysts at other hedge funds or part of a team without their own, independent track records. Holzberger says, 'In these cases we need to do a lot of digging and reference checking to find out exactly what part they played in a particular fund's performance.'
In assessing those hoping to join the pool of hedge fund talent, Ricks says: 'We don't like to see people who have jumped around. If they have moved every year it doesn't say much about their commitment level.'
Recruiters also look to see whether candidates are open to learning and cross-pollination. For example, they may work as a technology analyst within merger arbitrage but be interested in contributing ideas to a technology long/short fund.
Are hedge fund managers getting younger? 'These managers tend to be young,' says Ricks. 'I placed a 28-year old to run a significant fund the other day for a client where his boss is currently in his early 40s but started trading his book at 28 as well.'
If you're coming out of b-school and interested in hedge funds, you have to move quickly, says Ricks. 'Depending on the type of strategy, fund managers look for individuals who are quantitative, analytical, and can generate ideas independently without the use of street research. You need to be intuitive with the market.'
The current markets are reinforcing the trend away from a formulaic science to the more discretionary art of payment in hedge funds. 'The firm as a whole may have done a mediocre job but the portfolio manager has done a stellar job,' says Holzberger. 'Ways are being devised to firewall star portfolio managers - even if the founder of the firm has to dig into his own pockets to keep them.'
Executive recruiters smell something of a bubble in parts of the hedge fund industry.
Before that bubble bursts, however, there continues to be a burgeoning pool of financial capital chasing a limited pool of human capital.
Figures and commentary by Ricks & Ray Partners, LLC and Sextant Search Partners in New York