Even top traders in investment banks struggle to make the cut for a portfolio manager or trader role at a hedge fund. Once there, it's even more difficult to maintain a consistent level of performance and many gravitate back again. Movement from mutual fund managers to hedge funds, however, is much rarer, and - despite the buy-side tag - few hedge fund managers ever move to the long-only world.
This is changing. “In prior years, we’d most just see candidates with long-only experience pursue traditional asset management positions, but now we started seeing a lot of interest from hedge fund candidates for long-only asset management roles,” says Reshma Ketkar, director and head of the long-only investment professionals recruiting practice at Glocap Search.
“It’s been a tough couple of years for hedge funds,” she says. “A lot of people are questioning the fee structure, whether it’s sustainable and whether it will continue to attract major institutional investments.”
In particular, people working at underperforming hedge funds are feeling both vulnerable and frustrated. It is difficult to attract capital, not to mention sustain the amount of fees charged and bonuses handed out.
This is something of a reversal. Previously, the allure of hedge funds was such that asset management professionals were trying to make the move across.
“Hedge funds would do a tremendous amount of recruitment and would attract the top talent, although long-only investors were not necessarily the best fit, because they’re not shorting, using derivatives or going up and down the capital structure,” says Ketkar.
But as asset managers launching 'liquid alts' and other alternative investment strategies, potential opportunities have cropped up for hedge fund managers. The problem is that they rarely get the job. Ketkar says that 65% of the asset management roles they worked on last year had hedge fund managers among the finalists, but not a single person was actually offered the job.
Hedge fund burnout
It’s not just those who can’t hack it that are looking to leave the hedge fund space.
“Basically, a lot of [hedge fund] people have burned out, including successful traders – they have money, but they’re being asked to leave because they lost their edge,” said Gustavo Dolfino, president of the WhiteRock Group, a financial services executive search firm.
Some risk and analytics specialists have left hedge funds too, he said. A lot of hedge fund marketers are also being pushed away that haven’t been bringing in enough money and don’t have good relationships with enough investment consultants and other institutional gatekeepers.
“We see guys who are not big producers realize that they’re not going to make $100bn working at their hedge fund, so they look at [a traditional asset management firm] and get, say, $300k a year to do risk management or trading and focus on a different strategy,” Dolfino said.
“A lot of people are coming from an active trading platform and moving to a sleepy long-only shop aiming for much lower returns to have a place to hang their hat,” he said.
While some find the long-only space to be a refreshing change of pace from a cutthroat hedge fund, others are fed up with finance as a whole.
“Some people are leaving the industry altogether,” Dolfino said. “I know a former hedge fund guy who is starting a restaurant in Greece.”
Typically, it takes a bit longer for traditional asset management professionals to make it to become a portfolio manager.
“Many times [long-only investment professionals] have a few more grey hairs and a lot more experience before they make PM,” Ketkar said. “On the other hand, a lot of candidates on the hedge fund side are promoted to a more senior role a lot earlier on in their career.”
Hedge funds value meritocracy. If you’re good at what you do, consistently perform well and make the firm money, then they’ll put up with a lot, whereas at a traditional asset management firm, it matters how you deliver your message to senior executives and peers. Understanding how internal firm politics works is paramount.
“The aggressive bull-in-a-china-shop approach won’t work at a traditional firm,” Ketkar said. “They don’t hire and fire as often as hedge funds do – traditional asset management [hiring managers] think about long-term hires, and there tends to be much less turnover.
Hedge funds have always paid smaller salaries than long only asset managers, but their bonus payments could stretch into seven figures for top performers. However, the gap has closed - or reversed entirely, depending on your specialism. Senior equities portfolio managers in long-only asset managers received an average of $630k in 2014, according to recent research from Greenwich Associates and Johnson Associates, while hedge fund managers earned $570k. Fixed income hedge funds still paid more with a $750k average, the figures suggest, but compensation has been shrinking.
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