Hedge funds hiring again, payouts likely leaner

Date: Friday, October 16, 2009
Author: Reuters.com

* Hedge fund hiring picked up in August

* Endowments, money managers now competing for talent

By Svea Herbst-Bayliss

NEW YORK, Oct 15 (Reuters) - After spending months on the sidelines, hedge funds are hiring again, according to a report released on Thursday that offers new evidence the worst is over for the badly battered $1.4 trillion industry.

But the multimillion dollar payouts the industry became famous for during its go-go years will be scarcer this year as many fund firms are still suffering the fallout from last year's financial crisis, the report from executive search firm Heidrick & Struggles said.

"We have definitely seen a thawing in hiring, but it happened only in August and that is pretty fresh," said Claude Schwab, a partner specializing in financial services at Heidrick & Struggles.

Strong returns -- the average hedge fund has gained more than 17 percent since January -- coupled with four months of back-to-back asset flows have helped improve the mood in an industry that reported its worst-ever losses in 2008.

One reason hedge fund firms are hiring again is that they know what they will be earning this year, Schwab said.

This is good news for fund managers and investment professionals, but also for marketing professionals who will be instrumental in pulling money now invested in cash and U.S. Treasuries back into hedge funds.

But the competition for talent is also picking up at a time hedge funds are battling endowments, traditional asset managers plus banks' prop desks for the best people, the Heidrick report said.

For example, Putnam Investments, the Boston-based fund firm and other traditional managers are now offering clients portfolios that resemble hedge funds, and have recently hired people who used to run hedge funds.

Fund managers with expertise in credit, distressed, equity long/short and macro strategies are the most sought after managers today, Schwab said.

While fund managers may have jobs again, they likely will not take home the super-sized paychecks the industry became famous for.

"On compensation, we think it will be lower this year than last year which was lower than it was in 2007," Schwab said.

Most importantly, Schwab said hedge funds will be divided into three groups -- those that are up, those that lost a lot of money last year and cannot charge performance fees right now, and those that are off but are still able to charge their fees.

"We are less optimistic on compensation than our competitors," Schwab said, noting that his research includes people who have no job and therefore no bonus.

But payouts will likely pick up again in 2010. (Reporting by Svea Herbst-Bayliss; editing by Andre Grenon)