Hedge funds are having difficulty retaining back-office personnel

Date: Wednesday, December 12, 2007
Author: Russ Alan Prince and Hannah Shaw Grove

NEW YORK and ROSELAND, N.J., Dec. 11 /PRNewswire/ -- Nearly 70% of hedge funds are having difficulty retaining back-office personnel, according to a new survey conducted by CPA firm Rothstein Kass. Just below 60% of hedge funds polled also indicated that they do not have enough people working in the back- office currently. Findings are summarized in "The Compensation Conundrum," co- authored by Russ Alan Prince, a leading authority and counselor on private wealth, and Hannah Shaw Grove, a widely recognized expert on behaviors and finances of high-net-worth individuals.

"Hedge funds have seen tremendous inflows of capital in recent years, a trend that has accelerated as sophisticated investors seek to mitigate risk in volatile market conditions," said Howard Altman, Co-Managing Principal of Rothstein Kass. "However, as our research reveals, the rapid pace of industry growth has left back-offices more pressured than ever before. Firms of all sizes are struggling to retain qualified personnel amid existing staffing shortages, including the CFO and COO levels. These problems will only be exacerbated by the industry's increasing institutional focus, since these investors generally demand stricter reporting and compliance capabilities."

Survey findings were based on interviews with over 500 Chief Financial Officers at direct investment hedge funds with at least $100 million in assets under management. Firms in the study are representative of a wide range of investment styles, experience levels and assets under management. Approximately half had assets between $100 and $999 million. A quarter reported assets of between $1 and $2.99 billion, and the balance were firms with assets in excess of $3 billion. The study was commissioned and results analyzed by the Rothstein Kass Executive Search Group, which specializes in the recruitment and placement of senior financial executives and staff at alternative investments companies. Among notable findings:

"It was clear to us from our daily interactions with clients, that back- office staffing concerns are pervasive across all segments of the hedge fund industry. In partnering with Russ Prince and his team on this initiative, we sought to gain better insight into the scope of the problem. With 59.2% of all firms and even 47.7% of large funds reporting shortages in back-office personnel, it's apparent that recruiting and retention issues will persist," said Todd Noah, Principal-in-Charge of the Rothstein Kass Executive Search Group. "It's a time of unprecedented opportunity for talented individuals looking for an exciting career in the hedge fund industry. At some levels, companies require only a year or two of related experience, and are increasingly willing to consider candidates from related industries - especially if they possess the skills needed to ensure a smooth transition."

"The Compensation Conundrum" also provides 2007 total compensation projections for key non-investment roles at hedge fund organizations, including CFO, COO and Controller. Figures are composed of base salary and bonus.

"Our compensation figures offer ranges for total compensation by position and will serve as a benchmark for future research. However, since numbers include base salary, discretionary bonus, deferred and all other forms of compensation, apples-to-apples comparisons across the industry are difficult," said Todd Noah. "Flat organizational structures at funds also continue to contribute to title inconsistency from firm-to-firm. Over 65% of all respondents and over 70% of smaller firms suggested that titles are not necessarily representative of job functions. At smaller firms, for example, it's common for the CFO and COO roles to be rolled into the CFO title. Though the COO title is not bestowed on the CFO, the added responsibility is reflected in total compensation."

Highlights from the report are included below:

COO
Mean Compensation (000)
Salary $268
Bonus $860
Total $1,128
Range $581 to $1,738


AUM Salary Bonus Total Range
$100M to $999M $219 $796 $1,015 $581 to $1,622
$1B to $2.99B $324 $889 $1,213 $702 to $1,738
$3B+ $344 $1,024 $1,368 $722 to $1,429

CFO
Mean Compensation (000)
Salary $290
Bonus $1,379
Total $1,669
Range $506 to $2,006

AUM Salary Bonus Total Range
$100M to $999M $284 $1,526 $1,810 $732 to $2,006
$1B to $2.99B $336 $1,303 $1,639 $734 to $1,745
$3B+ $239 $1,011 $1,250 $506 to $1,920

Controller N = 493
Mean Compensation (000)
Salary $142
Bonus $238
Total $381
Range $241 to $531

AUM Salary Bonus Total Range
$100M to $999M $138 $294 $432 $241 to $531
$1B to $2.99B $152 $171 $323 $226 to $452
$3B+ $142 $166 $308 $257 to $521

About Howard Altman:
Howard Altman is a Co-Managing Principal and the Principal-in-Charge of financial services at Rothstein Kass. He has more than 30 years' experience in the financial services arena, with particular emphasis on investment partnerships, offshore funds and broker-dealers. A specialist in issues related to hedge fund structures, operations and tax matters, he is recognized nationally for his knowledge of the hedge fund industry, the issues affecting it and prospective trends. He can be reached at (917) 438-3941 or haltman@rkco.com.

About Todd Noah:
Todd Noah is the principal-in-charge of Rothstein Kass' Executive Search Group, the Firm's executive search and staffing affiliate. Prior to launching Rothstein Kass' Executive Search Group, he led the Firm's national Human Resources initiative. Prior to joining the Firm in 1997, Noah was an auditor at other major national accounting firms. Noah is frequently consulted and lectures on issues related to recruitment, placement and compensation of senior financial executives and staff at alternative investment firms. He can be reached at 212-586-0608 x3952 or tnoah@rkco.com

About Rothstein Kass:
Rothstein Kass provides audit, tax, accounting and consulting services to hedge funds, fund of funds, private equity funds, broker-dealers and registered investment advisors. The Firm is recognized nationally as a top service provider to the industry through its Financial Services Group. The Financial Services Group consults on a wide range of organization, operational and regulatory issues. The Rothstein Kass Executive Search Group specializes in the recruitment and placement of senior executives and staff in the alternative investment industry. The Firm has offices in New York, New Jersey, California, Colorado, Texas and the Cayman Islands. www.rkco.com

About the Authors:
Russ Alan Prince is the world's leading authority on private wealth, the author of 40 books on the topic, and a highly-sought counselor to families with significant global resources, and their advisors. He is co-author of Fortune's Fortress: A Primer on Wealth Preservation for Hedge Fund Professionals. www.RussAlanPrince.com

Hannah Shaw Grove is a widely recognized author, columnist, speaker and an expert on the mindset, behaviors, concerns, preferences and finances of high- net-worth individuals. She is co-author of Inside the Family Office: Managing the Fortune's of the Exceptionally Wealthy. www.HSGrove.com