Hedge funds will soon have to fill their offices with helter-skelters, Ferris wheels and sleeping pods if they want to continue to attract the talent they need to survive. And in order to reach these people, they’re more likely to have to shift to Silicon Valley or Shoreditch than Greenwich, Connecticut or London’s Mayfair.
In a brutal new world for hedge funds, only the largest firms or those with a small, nimble start-up mentality will survive. Hedge funds need to change, and central to this is attracting technology professionals who would rather be somewhere else.
This is according to a new report from Boston Consulting Group, which predicts that hedge fund assets could continue to slide by up to 30% by 2020 and margins could fall by 20% thanks to smaller fees and more capital expenditure.
Hedge funds need to embrace technology to survive, to develop new IT that can “provide access to new sources of data and the most advanced analytical and decision-making techniques.” But tech talent is looking towards technology companies, fintech start-ups and other digital firms. “Ambitious and inspired graduates have shifted their gaze from Wall Street to Silicon Valley,” says the report.
Hedge funds are very poor at attracting and retaining technology talent, it says. They need a “new breed of manager, a tech-style working environment and even tech-heavy location such as the West Coast”.
“Most hedge funds have invested in training programmes and they’re hiring in talent even earlier across tech and more traditional money management roles. The problem is, they’re still pretty bad at it,” says the owner of one asset management training company, who wanted to remain anonymous because of client confidentiality.
“The attitude is more about getting raw talent up to speed to survive in their existing environment, or pitching people against one another to select the best. Hedge funds still believe that people want to come and work for them,” he says.
There’s no shortage of applicants. Nick Finlay, director of investment management at recruiters Hays Financial Technology, says that hedge funds typically interview 30 candidates before making a decision on a hire. This compares to six-10 people at a long-only asset manager. Hedge funds still have one big pull – pay.
“Compensation remains a big attraction for most technology professionals going into a hedge fund – they still pay more than any other area of finance," says Finlay. "However hedge funds’ tech teams are agile and flat, so the working environment is appealing and projects get completed quickly.”
Hedge funds pay their developers $75-100k, he says, with the potential for a 30-60% bonus.
Hedge funds need to develop “intelligence teams”, suggests BCG, to get access to the best ideas and teams. But hedge funds are still “throwing people at the problem” of tech systems developed in-house when they might be better off using third-party tech vendors it suggests. “Core activities”, which offer a real competitive advantage, should be kept in-house, it says.
Finlay says that hedge funds are hiring software developers – particularly with C# and Python skills – as well as infrastructure professionals, and data analytics specialists.
"Most hedge funds are moving into data analytics in a big way, due to the huge rise in third-party data that can influence trading decisions; this is feeding through to increased demand for data scientists and data analytics professionals," he says.
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