Hedge Fund Pay Under Pressure

Recent months haven't been great for hedge funds. But recruiters say there are still jobs to be had in the sector, and no shortage of people eager to do them.

Don't look now, but the notoriously secretive hedge fund industry is suffering public convulsions. In the first quarter of this year new capital inflows fell 35% according to Tremont Capital Management, a hedge fund index and advisory company. Hedge funds such as London-based Bailey Coates and California-based Marin, are returning money to investors, and convertible bond hedge funds are down nearly 7% since January.

If this isn't enough, hedge funds' ability to make their employees jaw-dropping rich could be waning. Edward Lampert, head of Connecticut-based ESL Investments, may have made a record $1.02 billion last year according to Alpha magazine, but a pay survey by the CFA Institute suggests senior hedge fund managers are now earning 12% less than their long-only counterparts, at $430,000 total comp.

Nevertheless, recruiters in the hedge fund sector say the industry's allure is undented. "A portfolio manager in a long-only fund knows he's capped at $2 million a year," says Ken Marma, managing partner of Wall Street Options, "By jumping to a hedge fund he also knows he could make $15 million. Most people are confident of their ability and still prepared to take that risk."

Adam Zoia, managing partner of Glocap Search and head of the firm's hedge fund practice, casts aspersions on the CFA Institute study: "They're point-blank wrong," he says. "Most people in the upper echelons of hedge funds are making a lot more money than long-only fund managers."

At the same time, recruiters say hedge fund job vacancies have fallen, but not significantly. "On the whole, hiring hasn't slowed down," says Marma. "A few funds have put off hiring while they try to work out which strategy to go for next, but most are unaffected."

Recruiters say funds are hiring more for some strategies than others. Jobs in convertible arbitrage are down, after convertible bond arbitrage funds were hit by outflows following last month's downgrade of Ford and General Motors. By comparison, event-driven strategies are all the rage. "I can't even tell you how many mandates we've got for event-driven positions," says Zoia. "Everyone's looking there right now - the sector will just get overcrowded and then go down again."

Operational Roles on the Rise

The really big story at the moment is operational roles in hedge funds, says Zoia. As funds grow, he says they're boosting their infrastructure. The SEC's requirement that most funds register as investment advisors by February 2006 is creating jobs in everything from risk management to IT and legal.

David Durham, managing director of London-based executive search firm Durham Consultants, reports a similar trend in Europe: "A lot of hedge funds are looking for chief operating officers (COOs) right now," he says.

Unlikely candidates are being drawn into the hedge fund arena in the process. Last month, for example, Joanne Pace left Credit Suisse First Boston, where she was global head of human resources, to join FrontPoint Partners, a U.S. hedge fund with $5 billion under management, as COO. In the U.K., Gay Huey Evans left the FSA's markets division to join Tribeca Global Management, Citigroup's hedge fund, as president.