What does 2018 have in store for hiring at hedge funds, long-only asset management shops and private equity firms? Doom and gloom, boom or somewhere in between? Recruiters give their views on buy-side hiring for next year in the U.S.
Hedge funds will focus on hiring for production and revenue generating roles, such as portfolio managers and marketers. Most firms will not be looking to add “fixed-cost” employees because management fees have been compressed, according to Alexis DuFresne, director of the asset management practice at Whitney Partners.
“More funds will be inclined to pay on a commissions’ or performance-based scale for the above roles, as opposed to discretionary, taking as little risk up front as possible,” DuFresne says.
Hiring mid-level buy-side professionals will slow down, DuFresne predicts.
“Asset managers either want cheap labor or sure bets, the exception being someone who is at a discounted price point for what they can bring to the table,” she says. “Guarantees that exceed over a one-year timeline will continue to be hard to come by.”
Moving from a hedge fund to a mutual fund firm might not be so crazy, especially for distribution specialists.
“I think we will continue to see talent moving from hedge funds to long-only,” DuFresne says. “Because long-only firms live and die by their distribution capabilities, marketers are getting paid more to be at long-only firms.”
The concept of “quantamental” – investing based on a combination of quantitative (computer-driven) and fundamental (human-driven) research – is taking the asset management industry by storm, according to Heidrick & Struggles. It’s the idea behind BlackRock’s decision in March 2017 to shift $30bn in assets – 11% of active equity funds – to strategies that rely more on algorithms and models rather than human intuition to pick stocks.
“Everything quantamental, or the bridge between quantitative and fundamental investing, will remain hot in 2018,” says Deepali Vyas, the global markets and Americas hedge fund sector practice leader at Heidrick & Struggles. “All of the hedge funds are focused on making these head of quantamental hires, chief data officers, head of AI and head of machine learning.
“This manufactured skill set is top of mind for hedge fund managers,” she says. “Someone might have a very stong quantitative background but has been in an investment role if possible, but at least can interact with fundamental investment teams and send investment signals through alternative data that they will be processing.”
Some investment specialists move en masse to a new firm to keep their unit intact.
“Some asset managers will grow by acquisition of portfolio management ‘pods,’ in other words, managers who can bring their teams with them or who had unsuccessfully run a smaller fund and lacked resources to raise assets, built infrastructure or differentiate themselves,” DuFresne says.
PE firms prioritize candidates who have experience with both debt and equity investing.
“If you have prior experience in credit investing or leveraged finance, that enhances your ability to understand downside risk and increases your versatility as an investor,” says Lauren Callaghan, a financial services consultant at Spencer Stuart.
That blend of skills and experience is typically only found at the principal level on up to managing director, meaning this will be primarily senior executives moving from one PE fund to another, not coming from the sell side.
Across the buy side, certain types of sector experience will become in higher demand.
“Large firms will continue to grow, a lot of which will be from an expansion of their product suites, but I also think that we will see some really interesting sector-specific fundraises,” DuFresne says.
“For example, in healthcare, tech, cryptocurrency, artistic royalties, etc., where there may be a more uncorrelated or unique way of generating returns that cannot be replicated at a larger asset manager,” she says.
“Healthcare will continue to be a very interesting sector, as we have changes in government, sentiment and outlook, met with technological innovation.”
Most firms are trying to articulate their strategy around AI and machine learning, data analytics and the internet of things and looking for subject-matter experts who can pinpoint takeaways for such trends across all industries and verticals.
Some private equity firms, if they don’t already have a portfolio operations group, are looking to build one in order to drive operational enhancement across portfolio companies, Callaghan says. Often these teams leverage talent from management consulting backgrounds, and they also consider former private equity investors who have gained operations experience at a portfolio company.
“An investor who has parachuted into a portfolio company to help with a turnaround situation, perhaps on a temporary assignment as a COO, who is ready to come back to the fund level, can be an impactful fit for this type of team, which sits adjacent to the investment team,” Callaghan says.
Asset management firms are looking for chief information officers with expertise in IT infrastructure, the cloud, data analytics, engineering, programming, application development, information security and regulatory compliance, according to Emmeline Kuhn, a consultant at Leathwaite.
“Larger houses on the buy side looking to streamline the back office, through better data integration, better quality of data and being able to use data analytics to predict performance and risk exposure better, also in terms of fundraising, where their AUM will be going in the future,” Kuhn says. “Many are looking to hire a CTO or CIO or VP of IT with cloud and data analytics experience and leadership skills, being able to bring strategies to the table and communicate to business leaders effectively."
The supply-and-demand imbalance of junior investment bankers moving to the buy-side is more and more acute, according to Adam Zoia, the founder and executive chairman of Glocap and CEO of CompIQ.
“That hiring happens every year and it keeps getting earlier – the pre-MBA hiring for summer 2019 started at the beginning of the month,” Zoia says. “These kids are only a couple of months into their program and they’re already recruiting for their next job.
“Twenty years ago, it was May, two months before they graduated from their two-year analyst program, but now it’s more than 20 months before, which goes to show you the supply-and-demand imbalance,” he says. “Investment banking is the only talent pool that is rigorously trained in financial training and analysis – it’s like a practical Master’s degree, and the investment banks do a fine job training them.
“So PE firms are competing over this IB talent pool every year, not just with hedge funds but also VCs and tech companies – it’s crazy. If you’re a firm that has to hire people, you have an incentive to be the first to start recruiting, and other firms say ‘If I don’t go now, I’ll miss out.’”