Hedge funds lure with big potential payouts

Recruiters say bank employees who move to hedge funds are prepared to take big cuts in pay in the hope of cashing in if the fund floats.

In the past, it was always big bonuses which lured investment banking-types to the hedge fund sector. Nowadays, recruiters say it's the dream of landing an equity share in the company.

"It's become very easy to attract people to funds which might go public," says Peter Elliott, a director at recruiter Emerson Chase City. "Stock has become a big draw - I've seen people go from a salary of 120,000 down to 70,000 when it's a possibility."

Interest in stock follows success stories such as RAB Capital, which floated in 2004 for 85m, and has since more than tripled in value. Similarly, Absolute Capital Management floated on the Alternative Investment Market (AIM) in March this year, and has saw its share price double in the first two days of trading.

Elliott says bankers are less interested in going to work for funds that have already floated: "I don't see people taking big pay cuts to go on board unless there's a chance of getting a massive slice of equity."

The Wall Street Journal recently reported that Ashmore Investment Management, a London-based fund with $20bn under management and Polar Capital Partners, another London hedge fund with $2.7bn under management, are both planning to float later this year.

It cited a report by Man Group, the world's biggest publicly traded hedge-fund firm, which predicted that about 40 to 50 hedge-fund companies would list over the next five to 10 years.