Hedge Funds Began Hiring Frenzy in Late August, Heidrick Says

Date: Friday, October 16, 2009
Author: Miles Weiss, Bloomberg.com

Hedge-fund firms went on a hiring binge in late August and September as they sought to rebuild assets under management after the industry’s worst year, according to Heidrick & Struggles International Inc.

Much of the demand was for sales and marketing executives who can help funds woo investors, the Chicago-based recruiting firm said in a report today. Fresh cash is important to funds that have yet to generate enough gains to resume earning incentive fees from existing clients, the report said.

Hedge-fund assets under management dropped to $1.2 trillion at the end of 2008 from a peak of $1.9 trillion last June as the industry recorded its worst returns on record, according to data compiled by Hedge Fund Research Inc. of Chicago. Money managers are seeking to attract capital from endowments and sovereign wealth funds following a 62 percent increase in the Standard & Poor’s Index 500 Index from a 12-year low in March.

“The asset-building frenzy is unbelievable,” Claude Schwab, who runs Heidrick’s hedge-fund practice and co-wrote the report, said in an interview. “The number of hires from marketing and investor relations is keeping us extremely busy.”

Heidrick also received “at least 10 mandates in the last few weeks just for portfolio managers,” he said.

Firms that had positive returns last year have been actively hiring, including Soros Fund Management LLC, Paulson & Co. and Brevan Howard Asset Management LLP, Heidrick said in the report, which is based on client hiring trends and interviews with recruitment candidates.

Recovering From 2008

Kenneth Griffin’s Citadel Investment Group LLC also was adding investment professionals, while Steven Cohen’s SAC Capital Advisors LLC was hiring both marketing and investment personnel, according to the report.

The hedge-fund industry lost 10,000 jobs last year amid negative returns of 19 percent, based on the HFRI Fund Weighted Composite Index created by Hedge Fund Research. That was the largest decline since Hedge Fund Research began tracking performance in 1990.

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets, bet on falling as well as rising asset prices, and participate in profits from money invested. Managers typically charge fees equal to 2 percent of client assets and 20 percent of investment profits.

The industry rebounded this year with a gain of 17 percent through Sept. 30, according to Hedge Fund Research. Many funds have yet to recoup all of last year’s losses, and can’t begin taking a percentage of the profits from existing clients until they do. They can begin earning incentive fees right away on gains from newly invested cash.

Heidrick said in its report, titled “Hedge Fund Industry Trends,” that hedge funds face competition from endowments and mutual-fund firms for talent. Investment banks also are recruiting people for their proprietary trading desks, even as some of their top traders leave to start their own hedge funds.

“It’s a two-way street,” Schwab said. “We are seeing a brain drain from banks to hedge funds, and we are also seeing hiring into the proprietary trading desks of banks.”

To contact the reporter on this story: Miles Weiss in Washington at mweiss@bloomberg.net