Hedge fund spotlight: The Americans are coming
US hedge funds Paulson Partners, Touradji Capital, Canyon Capital and Vectors Research Management are planning to open offices in London, and possibly to hire additional staff.
Brad Schwarz, a principal at Vectors Research Management says "There are big investment opportunities here in Europe and we want to get closer to our European investor base," The Times reports.
Paulson Partners specialises in merger arbitrage, Touradji Capital, specialises in commodities and Canyon Capital is an equity hedge fund.
High pay for operations staff leaves hedge funds at risk
There were intimations that all may not be not well behind the scenes in Mayfair, or indeed Hedgestock, this week.
A report issued by Bank of New York and Amber Partners, a provider of operational risk services to hedge funds, suggested the expense of hiring increasingly costly operations staff means funds are neglecting the back office.
In an interview with Opalesque, a hedge fund news provider, Reiko Nahum, CEO and founder of Amber Partners, said newly founded hedge funds are most at risk from errors, net asset valuation (NAV) misstatements and financial fraud.
"These kinds of problems particularly affect hedge fund managers when they are starting out, because they can't afford to hire the best operations people, or they are using excel spreadsheets instead of proper order management systems," said Nahum.
Given Amber Partners' interest in selling risk management services to start out hedge funds, Nahum's position wasn't entirely unsurprising.
But Peter Elliott, a director at recruitment firm Emerson Chase City, confirms that start-up funds aren't wildly keen on hiring in expensive operational staff. "There's a chronic shortage of operations staff at the middle management level," he says. "People with four to five years' experience can command premium salaries, of 40,000 to 55,000, plus a 50% to 100% bonus."
Elliott says matters are made worse by the fact that start-up hedge funds typically want all singing-and-dancing operations specialists, who are rare. "Larger funds need people who can cover trade support, liaising with prime brokers, making sure all the trades are settled properly," he says. "But smaller funds need people who can do all that, and monitor risk too. They're like gold dust."
Incentive pay hedge funds on top
Hedge fund managers might not be so concerned about paying out for operations talent if only they'd read another story about the benefits of healthy pay packages. But they might have thought twice about offering base salaries.
Reuters has reported that some of the best performing hedge funds have ditched annual management fees and now charge fees related only to their performance.
The implication? That performance-related pay works, in hedge funds at least.
Reuters cited the likes of another US-based firm, Clarium Capital, which returned more than 50% in 2003 and 2005 and charges only incentive fees of 25%, instead of the standard 1%-2% management fee, plus 20% of any outperformance.
Sunil Chadda, head of hedge funds and derivatives at consultants Citisoft, is quoted as saying, "There are some [funds] who charge 40% or 50% performance fees. If you want performance you pay for it."
Highly paid investment bankers may well agree.
