Hedge Funds Need Back-Office Talent

That's one conclusion of a newly released survey of hedge fund compensation, issued by the executive search group at CPA firm Rothstein Kass together with private wealth experts Russ Alan Prince and Hannah Shaw Grove.

"Particularly at the entry levels, this is a time of unprecedented opportunity for young, talented individuals interested in being part of a revolutionary and growing industry with potential for significant financial upside," said Todd Noah, principal in charge of Rothstein Kass's executive search group, as quoted in the report. Hedge fund firms, he says, "are increasingly willing to consider candidates from related industries - especially if they possess the skills needed to ensure a smooth transition."

Noah says that accountants with only "a couple of years" of related experience are finding opportunities at hedge funds. Still, he says, firms "are very discerning. They would rather leave a position vacant than fill it with an unqualified candidate."

Let's Look at the Figures

Titled The Compensation Conundrum, the report documents that even for non-investment professionals, hedge funds pay better than both Wall Street and corporate America.

For instance, fund companies in the survey expect to pay "operations associates" a median of $110,000 in 2007 - comprising $69,000 base salary and $42,000 bonus. Larger fund firms paid a few percent more, but even among smaller firms with $100 million - $1 billion under management, median compensation was $101,000. The full range for this job classification was $91,000 - $148,000. (However, we should note less than half of the more than 500 participating firms had an operations associate on staff.)

For operations managers, median base pay was $129,000 with a bonus near 100 percent, for $252,000 total compensation. Firm size was important at this level: those with more than $3 billion under management expected to pay their operations managers $275,000 in base and bonus, while mid-size firms with $1 billion - $3 billion reported a median of $247,000. Firms with under $1 billion expected to pay $199,000. Directors of operations were expected to receive a median of $434,000, with the largest firms again paying substantially more than mid-sized and smaller firms.

In the accounting area, senior accountants earned $71,000 median salary, plus bonuses centering around 50 percent, making $106,000 in total pay. These figures fell in a tight range - $96,000 to $124,000 across the full survey group - and varied little with firms' asset size. Assistant controllers had median base pay of $93,000 and median bonus of about 75 percent, bringing total compensation to $163,000. Controllers had a median base of $124,000 and expected median bonus of $145,000.

Diving Deeper

While numbers like these look alluring, the hedge fund industry nonetheless faces critical staffing problems, the report says. Back-office turnover is high, job titles often don't reflect job functions, and smaller fund managers in particular suffer from chronic understaffing. And the number of back-office openings will keep growing as assets pour in. Hedge funds "have actually enjoyed an influx of capital since the onset of the (credit) crisis as sophisticated investors sought to mitigate downside risk," the report notes.

Rothstein Kass describes hedge fund employees as mostly younger than their peers elsewhere in the financial industry, "eager to learn and aggressive about their career development." But hedge fund organizational structures "can create the perception that there are limited opportunities for advancement for less-seasoned professionals," the report warns. "The unintended message to back-office employees is that their roles are expendable. As we can see from our data, the opposite is true."