Hedge fund managers: mavericks no more

Have hedge funds become more boring places to work? Demands from institutional investors and a need to recruit people with a solid track record have ensured that the days of recruiting star, maverick investment staff are slowly coming to an end.

“Firms would love to take the risk out of the hiring process and fill seats with managers with stellar backgrounds that have generated substantial returns with low volatility over a variety of market cycles,” said Antony Keizner, managing director of headhunters Glocap. “The issue with this very conservative approach is these star managers have little trouble raising their own funds, or if they prefer to trade on someone else's platform.”

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Greg Coffey, the leather-jacket sporting super-star trader who famously worked 20-hour days (even on family holidays) retired last year, and his GLG colleagues are increasingly gravitating towards  boutique funds. Meanwhile, another pioneer of the industry, Sir Paul Ruddock, chief executive of Lansdowne Partners, retired in March and has been replaced by investment banker, Alex Snow.

Investor money is increasingly gravitating towards larger hedge funds, which – rather than the mavericks of the financial sector – are looking more institutionalised. An example of this is how much effort they’re being required to invest in compliance. A survey by Deutsche Bank suggested that even small funds were being pushed to invest in due diligence teams, who would have veto authority in the investment decision-making process.

Rather than hot-shots, hedge funds are looking to hire those with a solid track record, believes James Dewhirst, director at recruiters Investment Management Partners. “It’s no longer enough to have had one good year and then look to jump into a new role,” he said. “Institutional investors want to see consistency of performance, which means hedge funds are largely attracted to those with a solid track record.”

The problem is, however, is that this often means recruiting people from an institutional investment or trading in investment banking background, at the expense of the so-called star-managers.

“So instead, savvy firms are spending more time considering 'rough diamonds', where the talent is less obvious (just as someone who might not own a track record, but were number twos to great managers and are now ready for primetime),” said Keizner.

An example of larger hedge funds looking outside of the sector is BlueCrest Capital Management, which has in the past two months hired a team of prop traders from Nomura, as well as ex-Citi and RBC Capital Markets staff.

While many have questioned the true star-quality of the hedge fund manager mavericks who succeeded prior to the financial crisis, making themselves hugely rich in the process, the conservative recruitment policies don’t always work out well, argues Keizner.

“Questions arise over 'replicability' even with proven managers, as doubts remain over whether great results can be sustained as market conditions change,” he said. “Scepticism has increased given poor performance from some managers coming out of banking prop desks that have struggled as independent entities. There is the realization that these managers benefitted from deal flow and research, as well as operational support, that has led to their previous successes not being repeated.”