The deteriorating environment for hedge funds is making it easier for large, successful funds to attract new staff and retain traders who once might’ve branched out on their own. This partly reflects the uncertain economic outlook and the challenges involved in launching new funds. The ability of large firms to locate traders in low-tax sites like Dubai and offer a more flexible working environment than in previous years are also key considerations.
2022 proved a tough year for the hedge-fund industry overall. Yet while nearly all hedge-fund indices produced negative returns, ‘a closer look at the data shows that multi-strategy and macro funds with the biggest concentration of investors’ cash posted gains’, according to Bloomberg. The news agency said that with a handful of giant firms gaining dominance over the hottest corners of the hedge-fund industry, money and talent were becoming concentrated among the bigger players. 1
Bloomberg added that:
‘Giants from Citadel to Millennium Management produced double-digit gains as their army of traders once again earned steady returns. Those betting on macro-economic trends, such as $5 billion Haidar Capital and $15.5 billion Rokos Capital Management, are poised for record annual gains’.
Just a fifth of hedge funds now manage 90% of the industry’s assets, according to data compiled by Hedge Fund Research Inc and cited by Bloomberg. That trend is likely to continue, given that it’s getting harder to attract startup capital. The capital-raising environment for startup hedge-fund managers – defined as firms managing assets of $250 million or under, with a track record of less than five years – is increasingly tough. 2
With the threat of recession stalking the globe in 2023, it’d be unsurprising if talented and ambitious professionals decided to seek the safe harbour of large, well-capitalised firms. But having won the war for talent, how do the big hedge funds keep these prized assets?
The coronavirus pandemic shifted working patterns across industries, including the hedge-fund business. Indeed, offering a remote and hybrid working model has emerged as the key means of attracting and retaining talent, according to a report from the Alternative Investment Management Association (AIMA) and KPMG, published in late 2021. The report was based on the results of a survey of 162 hedge-fund managers, representing approximately $1 trillion in assets under management (AUM).
As the chart shows, 79% of firms have already moved to some form of working from home.
Many firms admitted that they were facing challenges, including team-building, collaboration and decision-making. Yet according to the human resources representatives and executive recruiters surveyed by AIMA and KPMG, firms are willing to embrace working from home because ‘there’s a new front in the battle to retain top talent, namely whether a firm offers flexible working and an improved work-life balance’. The report cited research by AIMA, which found that 90% of hedge funds were ‘somewhat’ or ‘very’ concerned about talent retention. 3
Nearly two-thirds of firms are willing to offer hybrid working as a key means of retaining and attracting talent.
Some firms even offer total home working to provide a competitive edge in the talent war. Adrian Fraenkel, founder and Chief Executive Officer (CEO) of quant hedge-fund manager Varuna Technologies, was quoted by hedgeweek.com as saying his firm’s 100% remote working model is able to attract investment management talent from all over the world, including those who may otherwise be unable to find relevant opportunities where they’re based. 4
Reinforcing that point, the Chief Financial Officer (CFO) of London-based hedge fund Man Group said in February 2023 that ‘hybrid work enables us to attract and retain diverse talent’. 5
The technological advances that allow employees to work remotely also mean that the industry in general can be more mobile. Dubai, for example, is emerging as a favoured destination for hedge-fund businesses, which are drawn by its ease of doing business, tax-free status and allure as a global travel hub. It’s also a friendly time zone for portfolio managers who have investments spanning the globe, from North America to Asia.
Bloomberg reported in February that Dubai’s financial centre was talking to more than 50 hedge funds about setting up in the Middle East business hub after attracting industry heavyweights such as Millennium Management and ExodusPoint Capital Management. 6
The big winners in the ‘talent war’ appear to be employees. If and when conditions improve for startups, the pressure will be on the big funds to maintain and even increase their appeal.
1 https://www.bloomberg.com/news/articles/2022-12-19/bigger-was-better-in-2022-global-hedge-fund-industry-sees-split
2 https://www.hedgeweek.com/2022/06/27/315592/start-hedge-funds-stay-optimistic-amid-battery-challenges
3 https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2021/12/global-hedge-fund-industry-accelerates-out-of-the-pandemic.pdf
4 https://www.hedgeweek.com/2022/10/20/318010/reshaping-hedge-fund-career-path
5 https://www.fnlondon.com/articles/man-group-coo-hybrid-work-enables-us-to-attract-and-retain-diverse-talent-20230228
6 https://www.bloomberg.com/news/articles/2023-02-20/dubai-in-talks-to-attract-50-hedge-funds-to-mideast-finance-hub
Publication date: 2023-04-19T16:48:43+0100
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