Changing Tide: I-Banks Beckon Some Buy-Side Pros to Cross the Aisle
This year could see a notable number of investment professionals leave hedge funds and other buy-side institutions to join investment banks - reversing the more typical flow of talent from banks to fund companies.
Those most prone to jump the aisle, recruiters tell eFinancialCareers News, are hedge-fund research analysts who left the sell side in recent years and didn't attain the rewards they wanted. Many such analysts spent the past year simply trying to hang onto their jobs.
"Hedge-fund analysts are increasingly becoming candidates" to move back to the sell side, says Richard Lipstein, managing director at Boyden Global Executive Search. "Sell-side analysts who have recently moved into hedge funds have found in some cases that it's not been as easy a transition for them to make. Some hedge funds analysts were unhappy with compensation last year. While they may have survived firm cuts, they're also not making a lot of money."
Fee Model Limits Buy-Side Pay - For Now
The buy side's backward-looking revenue model, with fees computed from trailing assets under management and trailing returns subject to high-water marks, reduced compensation for many fund pros in 2009. An eFinancialCareers survey of registered users in the U.S. found that sell-side employees who reported being either "very satisfied" or "somewhat satisfied" with their 2009 bonus outnumbered those who were displeased by 44 percent to 40 percent. On the buy side, those proportions were almost exactly reversed: 44 percent voiced some degree of dissatisfaction, compared with 41 percent who were satisfied.
Grumbling isn't limited to looking back at the 2009 bonus season that concluded last month. There's also a forward-looking element that spells diminished expectations for some hedge fund professionals. "Most buy-side firms spent 2009 digging out of the high-water-mark hole of 2008," explains Adam Zoia, chief executive of New York-based recruiter Glocap. So last year's restrained payouts didn't come as a shock. The real question is whether compensation will rebound this year if returns are robust.
However, anyone contemplating a jump to the sell side should be mindful of a culture gap. "On the buy side, environments and cultures tend to have less of that 'to get ahead you have to kill your neighbor' attitude," remarks Jay Gaines, chief executive of search firm Jay Gaines & Co. "Even though there are very few remaining private partnerships, the buy side still retains some legacy of congeniality."
Also, some buy-side pros say the big investment banks have become less appealing in recent years. "Many wirehouses have shot themselves in the foot and really have tainted their brand equity," one independent portfolio manager says. "Being with Merrill Lynch used to mean something - I'm not sure it does anymore. Smith Barney's in the same boat."
Sell-Side Pay Structure Shift
Still, pivoting back to a bank or broker-dealer could be a lifeline for some professionals dislodged from investment management firms during the crisis. "Some people who have moved to the buy side may not have been the best performers, but they can go back to the sell side and do better than they can on the buy side," one recruiter says.
Politically driven changes to large banks' compensation mix also must be considered. Under fire for awarding large cash payouts at year end, several bulge-bracket institutions that received government bailout aid moved to de-emphasize variable pay while pushing up base salary's share of total compensation. Those changes - generally confined to the VP level and higher - also aimed to dissuade top performers from fleeing to less regulated firms. As a result, "The base salary discrepancy between junior roles and senior roles at firms will be more pronounced this year," observes Jim Geiger, an executive recruiter at Analytic Recruiting.
If you're a buy-side trader or researcher thinking about going or returning to a dealer firm, the window remains open. A wide range of banks that slashed headcounts in 2008 and early 2009 continue to re-staff. Citigroup is even hiring for its proprietary stock trading unit, unfazed by the White House proposal to ban banks from that business via the so-called Volcker Rule.