Headhunters: Banks can no longer afford us

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Like a jilted lover, financial services headhunting boutiques are going out of their way to prove that, actually, they don’t need investment banks for business and are looking for more lucrative work elsewhere.

Banks are increasingly looking to bypass the headhunter fee structure – typically 33% of annual compensation paid in three tranches on the initiation of the search, then another third thirty days later and the final payment upon placement of the candidate. This means turning to in-house recruiters, with heads of recruitment at our roundtable earlier this year suggesting that 70-75% of their hiring was done themselves, or looking to fill roles with internal candidates.

In 2012, UBS said that just 10% of its jobs were filled by recruiters. For contingency recruitment firms and large international headhunting firms this trend has meant diversifying away from financial services whilst also trying to maintain their relationships with the banks. For boutique firms, it’s meant trying a different strategy.

“We’re only focusing on hedge funds at the moment,” said the managing director of one well-known boutique search firm who declined to be named. “Banks are offering 25% of the first year’s salary, while hedge funds will still pay up to 30% of the first year’s compensation. At the level we operate at, this means a £500k fee versus a maximum of £125k per placement for a bank. It’s a no-brainer to move away until banking picks up again.”

Key to this strategy, he says, is leveraging his relationships with former bankers and traders looking to move into alternatives sector and linking them with the large hedge funds with an appetite to hire. BlueCrest Capital Management, Blue Mountain Capital Management and Millennium Partners are among the hedge funds currently poaching from the banks.

“Fees are definitely smaller, largely because guarantees are so rare,” said another managing director of a London search firm. “We have to place ten candidates to get the same fees we would have received for 6 placements three years’ ago. However, for us, it would be foolhardy to move away from the big banks entirely. We’re working harder for less, but that’s how the industry is evolving.”

His argument is that hedge funds do even more recruitment directly than the banks, despite the uptick in internal recruitment at the bulge brackets. What’s more, investment banking recruitment is cyclical, and currently there are signs that banks are both willing to hire more and use recruiters to do so, he suggests.

So, why should bankers still use recruiters? “We have a better overall view of the market, can provide candidates with an array of opportunities and will get a better pay deal for you,” says the headhunting MD.