Staff churn has always been an issue at hedge funds. The rewards of switching into a hedge fund as a investment banking trader can be great, but the risks are also high. Performance dips and you’re out on your ear – no matter what your historical performance and how long you’ve been with the firm.
Brevan Howard, BlueCrest Capital Management and Millennium Capital Management in particular have a reputation for disposing of staff relatively quickly. The ‘sink or swim’ mentality means that the Financial Conduct Authority register is littered with traders who spent years as trading wunderkinds in large investment banks only to be ejected from top hedge funds after a matter of months.
Suddenly, however, hedge funds are taking a more caring attitude. Faced with talent shortages and the need to be seen as attractive employers, hedge funds are instead increasingly looking to develop their employees.
“There is not the pool of talented traders coming out of the investment banks any more - prop desks have closed and the pipeline isn’t there,” says Boris Pilichowski, a former prop trader at Deutsche Bank and Morgan Stanley and hedge fund manager who now runs investment management coaching firm Axis Minds
“The hedge fund world is now dominated by large players and when you employ 50 to 200 people you need the HR infrastructure and programme in place to attract and develop those people, the same way investment banks do. The most successful hedge funds of tomorrow are the ones investing in people."
Pilichowski declined to name any hedge fund clients, but says that what started out as a trickle of hedge funds looking to train their portfolio managers has fast become an industry trend.
“It’s transitioning from an industry where portfolio manager selection and churn was core to success, to one where hedge funds need to retain, support and develop staff in order to win.”
Employees of larger hedge funds with a reputation for hiring and firing still suggest that this culture continues, however. Employee reviews of Millennium Capital Management on Glassdoor describe it as “cut-throat”, while comments from Bluecrest’s CFO that departures can be “slightly abrupt” if performance dips is echoed by employees.
“There is a hire and fire mentality which does not make you feel secure in your role or long term job prospects,” writes one BlueCrest portfolio manager. “Very high turnover and few handovers so a real loss of knowledge due to this. This also impacts the culture heavily and makes for an extremely stressful and unsettled work environment.”
Pilichowski says that hedge funds are not training their staff out of the goodness of their hearts or to improve their 'employer brand', but because there’s a business imperative for doing so.
“The standard diversion of returns between hedge fund portfolio managers has been reduced a lot over the last ten years,” he says. “Today most of them use the same tools and the same approaches, hence the difference in their performance is smaller. As a result, a good PM in the long term can to be an under-performer in the short term: there is more randomness in the performance and you cannot only use this data to select them.”