The alternative investment business is just beginning to approach human resources in an organized fashion.
The hedge fund marketplace is hot, and its demand for analysts and back office folks is high. But the growing alternative investment industry is just beginning to get a handle on approaching personnel issues in a more organized fashion. Plus, only the top performers have job security.
The demand for experienced, higher-end personnel may be the thing that gets hedge funds more organized in their hiring practices, observes Charles Gradante, co-founder and chief investment officer of the Hennessee Group, a New York City registered investment adviser that consults with direct investors in hedge funds. "Generally, all of the funds are looking for the same types, the hot business school guys with big personalities and the more cerebral math folks on the quant or arbitrage side of the business or the IT end of it," he says.
Currently, there is less of a transparent basis for measuring performance and tying that to pay levels, says Gradante. "It's a high-pressured environment with the top 10 percent making the money and the bottom 5 percent getting fired," he says. "There's really no room for mediocrity or disappointment at the hedge funds." Lean hedge funds, he adds, are apt to lay off the bottom 25 percent of their staffs "very quickly." How long does a newcomer have to prove himself? "Probably six months to a year," Gradante says.
While a few recruiters are at work in the marketplace, for now most hedge funds seem to be doing their recruiting through networking channels, particularly through prime brokers. "The intermediaries know the talent they want, and they know what people want jobs," Gradante explains. And, while the top schools and the best math degrees can certainly help get you in the door, intelligence is only part of the skills set needed in the hedge fund world. Prior experience with a top money manager can certainly help.
Heart and Art
Ultimately, even the best degrees and best resume can't help those who don't have the heart for the business. "Intuitive decision making abilities are also needed," says Gradante. "Most business decisions, including buying and selling stocks, require an analytical side, but it's not a pure science. It's an art. Those that are the most successful are the creative risk takers."
Luckily, says Todd Noah, principal in charge at Rothstein Kass Executive Search Group in New York, the demand for people is huge. Staffers do seem to be hopping from one firm to another, he notes, and the skills needed are diverse. "There are many different types of funds out there, and there are different needs for each," Noah says. "The more esoteric the fund, the more difficult the work will be, of course." The difficulty of a job may not necessarily relate to the assets under management as much as the structure of the fund and the amount of funds involved, he says.
Gradante sees growing need for analysts who can handle the demands of funds of funds. Noah sees demand continuing for higher-level back office people, from chief operating officers to chief financial officers.
A Maturing Industry
"Certainly, there are a ton of creative financial people who are attracted to hedge funds because of the compensation potential," Noah says. "But the people there are working harder these days as the field continues to expand."
While back office professionals are paid well, their work is harder to correlate to the performance of the fund since they generally work on a salary basis. Analysts tend to receive bonuses more directly tied to a fund's success. Given the lean and mean structure of most funds many find they need to jump ship if they want to move up.
One development could mean a more consistent, organized and transparent approach to hiring and compensation: the increasing sales of minority interests in hedge funds to large banks. "They're becoming more institutionalized," says Noah. "There used to be no foreseeable exit strategy, and now you can see funds going public, and so that's also going to change hiring patterns and policies. The small single manager funds are not going away completely, but there is certainly consolidation."
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