Back-office staff face longer hours and more responsibilities

Rothstein Kass, a recruitment firm specializing in operations staff, published a study in December calling attention to the staffing shortages in hedge fund back offices.

Rothstein Kass’ survey of 500 hedge funds showed 70% of all respondents from small firms, with less than $1bn (€686m) under management, said they were taking on more responsibilities than their job titles suggested. Computer and administrative support staff are also expected to work longer hours.

Large hedge fund management firms, with at least $1bn of assets under management, have begun hiring junior staff and training them in-house.

Adam Zoia, managing partner and founder of GloCap, an executive search firm focusing on the alternative asset management industry, said: “We have seen a doubling in the number of junior professionals in the past two years. There’s been a huge push for home-grown talent. It is something private equity started doing much earlier.”

The growing demand for hedge fund recruits in the back office also means more staff are coming in without previous hedge fund experience.

Many operations and back-office staff are recruited from investment banks or other companies where they are used to working in large departments in which they have a specific role. When they move to a hedge fund which has fewer staff with a broader range of responsibilities and longer hours, it sometimes comes as a culture shock.

Prime brokers, which finance hedge funds’ trades, have rushed to help their clients fill the gap, either using their in-house capabilities or by acquiring companies that provide these services. Deutsche Bank’s acquisition of hedge fund administrator Hedge Works was the latest example of this trend.

Morgan Stanley, one of the largest prime brokers, went further when it launched a recruitment service two years ago in response to growth outstripping supply.

An executive director of business consulting at Morgan Stanley said the shortage of back-office and fund administration staff was leading hedge funds to depend more on prime brokerage services, a decision that is guided by the complexity of the fund manager’s strategies and how much control the owners are willing to give up in the short term. She said: “Never has the non-investment aspect of hedge funds been more important. Never have investors demanded so much transparency.”

Compensation for risk specialists in asset management has also been growing, according to the 2007 Risk Talent Associates Professional Compensation Survey, which found remuneration for a chief risk officer at a hedge fund was $1.3m in 2006, 17% more than in the previous year.