Guess Who's Poaching Hedge Funds' Staff? The SEC

No kidding: the government regulatory agency is lifting talent from hedge funds. That's one conclusion Heidrick & Struggles, the global recruiting firm, drew from a survey of hundreds of hedge fund professionals.

Heidrick says major endowments, sovereign wealth funds and the SEC made key hires from hedge funds in 2009, "where candidates were attracted to the cause or mission associated with the institution as well as the investment opportunity. The year 2010 will see a continuation of this trend."

Veteran hedge fund and markets professionals are in demand at the SEC, the report says, due to the government's pledge to beef up enforcement and the creation of a new Division of Risk, Strategy, and Financial Innovation.

The SEC said early in January that Carlo di Florio, the new director of the Office of Compliance Inspections and Examinations, plans to recruit "colleagues with valuable new skill sets, including trading strategies, risk management and quantitative analytics."

Return of Bidding Wars and Guarantees

Based on information from more than 400 portfolio managers and more than 100 hedge fund firms, Heidrick's fourth-quarter report paints an upbeat picture for job-seekers:

- The pool of available "senior top talent" (i.e., strong candidates you're competing against) is smaller because many hedge fund investment pros already have been scooped up by other hedge funds, bank prop desks, and various buy-side institutions including asset management firms, endowments and family offices.

- Compensation bidding wars will return. "The post-TARP brain drain is turning around, with a significant increase in hiring at most large banks/proprietary trading firms," says Heidrick partner Claude Schwab, who heads the firm's U.S. hedge fund practice. "But comp will not reach levels prior to the summer and fall of 2008."

- Marketing staff are in demand as funds deploy new, more transparent investment products to lure back assets.

- Return of compensation guarantees - albeit coupled with an increase in clawbacks and deferrals, similar to the compensation reforms being instituted by big banks.