Perfect pitch opens door to pension mandates

Date: Monday, November 15, 2010
Author: Harriet Agnew, Financial News

Sales and marketing has been a rare growth area for hedge fund hiring as funds rebuild depleted assets and target new markets. Those with the connections to bring on board institutional investors are most in demand. Institutional capital is the holy grail: long term, stable and sticky. It is also expected to be the main growth area.

In the UK, institutional investors currently allocate 8.2% of their assets to hedge funds, according to a September survey by JP Morgan Asset Management, and this is expected to grow to 9.2% over the next two to three years. US institutions are expected to invest $150bn in hedge funds in the next three years, according to consulting firm Casey Quirk.

A report published last month by consulting firms McGladrey and Greenwich Associates found that a hedge fund’s commitment to sales staff leads to more institutional mandate wins. On average, firms with two or more full-time sales people won more than 10 mandates over the past 12 months. Funds with fewer salespeople won seven.

Managers have been making senior hires to target the institutional market. Alternatives manager SkyBridge Capital has hired Peter Carey, the former head of absolute return investing at the New York State Common Retirement Fund, to lead the firm’s hedge fund business for institutional investors.

For many firms, the emphasis on sales is a big change. Israel Englander’s hedge fund firm Millennium Management spent 20 years without any marketing or investor relations staff, Englander told an audience at the Terrapin Hedge 2010 conference in London last week. Englander said that following the crisis, it became clear that “performance is critical but not sufficient”.

Last year it hired Michael Novogratz, former president of alternative investment firm Fortress Investment Group, to be in charge of marketing and investor relations. CQS has also been expanding its sales team, hiring Mandy Mannix, formerly global head of capital introductions at Nomura, as global head of sales and marketing.

Because of this demand, sales staff remuneration has increased. A report on compensation this month by search firm Glocap Search and data provider Hedge Fund Research found that fund marketers, alongside compliance professionals, experienced the largest percentage increase in compensation this year.

A headhunter said that an institutional marketer in a hedge fund on a discretionary bonus structure can expect to earn a base salary of between £100,000 and £175,000 depending on seniority and responsibility. Bonuses can be anywhere between £100,000 and £500,000. He said: “It is not unusual for a good-performing, relatively senior institutional marketer to earn a total package in excess of £750k.”

The type of individuals that hedge funds are hiring has changed, according to Daniel Celeghin, a partner with Casey Quirk. He said: “Early on, hedge funds stumbled because they brought on the wrong people – those from investment banks.” Celeghin said the dream sales hire for hedge funds was a senior salesperson from one of the top five funds of funds.

“They are proven material,” he said. He added that managers must expect to offer guaranteed bonuses for the first year or two as pension funds are often slow to allocate. “You need patience. Institutional relationships take time.”

In a bid to raise more money from institutions, managers have also been hiring from consultants. Citadel Investment Group this year hired Jake Walthour, co-founder of New York consulting firm Aksia, as head of US distribution.

However, consultants are unproven sales people. Mark Young, global practice head of hedge funds at financial services search firm Sheffield Haworth, said: “Consultants might know where all the contacts are, but can they convert those to tickets? While on paper it looks sensible, from a personality and culture fit, it might not always be right.”

A better fit for a consultant might be in funds of hedge funds. As pension funds increasingly move to direct investing, funds of funds have changed their approach. They are moving away from the traditional multi-strategy portfolio, into more of an advisory model.

Jeff Holland, co-founder and head of client risk management at fund of funds firm Liongate Capital Management, said: “Institutions are becoming a lot more sophisticated in terms of defining their objectives.

Funds of funds have to be able to have a two-way dialogue with their larger institutional clients to understand what their objectives are. It’s helpful to have someone with more of a consulting background to talk their language.

“Selling to pension funds has become less product-driven and more bespoke.”

Phil Irvine, co-founder and director at PiRho Investment Consulting: “The big thing for funds of funds at the moment is the advisory model. They are moving to customised portfolios rather than commingled funds. By definition this needs a different type of sales person, who understands the needs of the investor, rather than someone who is selling a product. A consultant-based person is more likely to be in demand.”

Liongate is looking to hire one or two individuals with a consulting background.