Asset managers get a thing for derivatives structurers
Sub-prime problems mean asset managers' pursuit of derivatives talent is lustier than ever. Trouble is, it doesn't come cheaply.
"There's a lot of demand from asset managers for candidates with exotic pricing model expertise," says Jon Durrant, a consultant at search firm Selby Jennings. "They're keen to move people from the sell-side, but banks are hitting back with some fairly big counter-offers."
The US sub-prime mortgage crisis, which has seen two Bear Stearns hedge funds make big losses and raised questions about the pricing models underpinning collateralised debt obligation (CDO) products based on the dodgy mortgages, is shining an unflattering light on funds' need for specialists who really understand what they've invested in.
Last year around 500bn in cash and derivatives CDOs were issued in Europe and the US, according to the Bank for International Settlements; and according to data from Citigroup quoted in the Financial Times, 40% of these are in the hands of traditional asset managers.
Influential fund managers including Bill Gross of Pacific Investment Management, Peter Knez of Barclays Global Investors and Anthony Bolton of Fidelity have all made worried noises about the potential for things to go wrong. Bolton says the CDO market is similar to the split-capital investment trust sector - which went into meltdown in 2001 and 2002.
Houses such as Barclays Global Investors have big derivatives pricing and structuring teams in place already, but have been adding recently according to headhunters.
Synthetic CDO pricing expertise doesn't come cheap, though. At banks, basic salaries for people with three years' experience are 70k to 90k; bonuses are anything from 100% to 300%. Fund salaries are similar, but bonuses are only 80% to 100%, plus stock arrangements.
Plus, Durrant says banks are guarding their pricing expertise carefully, and will typically make generous counter-offers if funds attempt to poach their staff. Because of this, he says some funds will accept candidates with a Masters degree instead of a PhD.
