Hedge funds are recruiting prop traders on stingy packages

Hedge funds' characteristic generosity has fallen by the wayside when it comes to recruiting prop traders, who are being forced out of the banks as Dodd-Frank takes hold.

Just because hedge funds can pay non-deferred, largely cash bonuses doesn't mean they will, and just because banks' former masters of the universe are available doesn't mean hedge funds are willing to shell out for them.

"With a greater availability of talent, hedge funds don't have to be as generous to get prop traders on board," says David Durham, managing director of hedge fund headhunters Durham Consultants. "Some traders have been offered compensation of 1.5% of revenues - it would have been six or seven times that previously."

Part of the reason is that hedge funds are still feeling pressure on fees, which fell to 18.95% last year, according to Hedge Fund Research figures - the lowest since it started tracking them.

Then there's the fact that hedge funds don't feel they have to pay prop traders particularly well, suggests Tim Wright, asset management remuneration director at PwC.

"Hedge funds are on the front foot - it's a one way flow of talent from the investment banks, and prop traders are being pushed, not pulled," he says.

But prop traders are still accepting the jobs. Barry Seath, managing director of hedge fund recruiter Mirage, says most are seeking security in the medium term rather than "waiting for the axe to fall" in the investment banks.

It's either that or go it alone, but with investors being both more choosy and more demanding, this is no easy task.