In Depth

Hedge Fund Hiring And Compensation Trends For 2011

Jan 3 2011 | 12:11pm ET

Last year we saw the majority of money invested with hedge fund managers going to large funds—those with assets under management of $1 billion plus. Now, it seems, the hiring will be done by those firms as well.

J. Patrick Gorman and Jodi M. Wechsler, co-founders of executive search firm iFind Group, which specializes in the alternative investment space, tell FINalternatives that in addition to mega-funds growing their ranks, 2011 will be the ‘Year of the Accountant,’ and that we should expect to see more deferred compensation deals as firms get creative in order to leave cash in their coffers.

Where are you seeing the most hiring activity right now?

We continue to see the bulge bracket banks and the megafunds (those funds with AUM over $5B) hire accounting and finance professionals. We also have seen an uptick in private equity job openings as this industry has been especially active in deal-making in the last half of 2010. 

On the other hand, small fund managers (under $200MM AUM) and new fund managers remain slow in hiring additional back- and middle-office personnel, as the environment remains a difficult one in which to raise new capital.

How did hiring and compensation trends change over the course of 2010 (Q4 vs. earlier in the year)?

A mix of regulatory and structural changes has created a consistent year-long demand among bulge bracket banks and megafunds for people with accounting, compliance and valuation backgrounds. As in 2009, big-name firms with well-managed, highly liquid balance sheets and steady, long-term track records received an inflow of capital from safety-conscious investors, which also created a need for more accountants.

In terms of compensation, all of 2010 has reflected the savers’ mentality of “It’s not what you make but what you keep.” Businesses that made money over the last two years are getting creative in how that cash leaves their coffers. One technique that we have seen used is deferred compensation, such as when a firm defers a portion of its employees’ bonuses over 2-3 years rather than make a lump sum payment at year end. We also have seen start-up hedge funds align base salary raises with growth in the firm’s overall AUM. 

The bottom line is that companies are becoming much more involved with structuring compensation in a way that not only rewards their employees but also safeguards their overall liquidity.

What is the outlook for 2011?

At iFind we place professionals from staff accountants to the CFO. As such, we believe that 2011 will be the Year of the Accountant, as continued regulatory/tax changes from Washington will result in the vigorous hiring of back-office professionals to account for these new rules.

Also, we foresee a return of capital to start-up hedge funds, making the CFO job market more active not only for our placement of CFOs at these funds but also for the replacement hiring at those funds whose CFOs have departed to join start-ups.

What are some of the main factors shaping hiring and compensation trends for next year?

Although new regulatory requirements will continue to increase hiring into next year, the real engine of lower unemployment and higher compensation will be economic growth. For hiring to become robust at all levels we will have to see continued performance and profit from companies big and small.   

For the hedge fund industry, the most important signal will be the return of Day 1 capital to the hedge fund launch. When the market feels again that investing in hedge fund launches are both safe and lucrative then the entire employment picture will improve in 2011 for workers at all levels.

How are companies preparing for Q1? What is top on their priority list?

As always, Q1 is about closing out the year of 2010 in an efficient and mistake-free way.  However, in terms of employment and retention, the top priority in Q1 is to fairly compensate the more junior employees in the organization. 

The reason for this new emphasis on junior staff compensation has been market-driven. The job market in 2010 has been very active for those junior people in the $80-$110K pay range as CFOs and COOs sought to bring in more junior people to execute more senior level responsibilities.

What effect is the political/regulatory environment having?

The effect has been a major uptick in hiring for people with a compliance, tax, accounting and/or regulatory background. 

Are there any wild cards that could change the direction of 2011’s trends?

If we double dip into a recession again, then like the end of 2008 we will see companies freeze hiring for all but the most necessary roles. Based on what we see and hear from our hundreds of clients, we believe that the double dip scenario is highly unlikely.

Who will benefit most in 2011 in terms of hiring and compensation (companies, professionals, PE, hedge funds, etc.)?

The people who will benefit the most will be those “junior” staff and senior accountants who have been given responsibilities above and beyond their pay grade. Due to firms’ post-recession frugality, CFOs and COOs hired less-expensive, less-experienced staff and put them in roles that were highly complex and typically given to historically more senior (and more expensive) workers. Thanks to this “fast-forward” work experience and exposure, this “rookie” class of workers will reap major benefits throughout 2011 and beyond. 

On the flipside, CFOs and COOs honed their organizational and coaching skills over the last two years as they guided these “rookies” through advanced job responsibilities. As a result, CFOs and COOs are now more well-rounded than ever in their overall management ability.

Who stands to benefit the least?

Unfortunately, CFOs may stand to benefit the least. Although they will gain deeper management experience through the additional time spent mentoring/teaching their junior staff, they may not get compensated for this time. 

How do you expect 2011 to be different from or similar to 2010?

Different – start-up hedge funds will come back and overall job market “liquidity” will improve at all levels, including opportunities for CFOs. Liquidity means that there will be a lot more job openings at all levels compared to an illiquid market where employment opportunities are scarce.

Similar – bulge bracket banks and megafunds will continue to hire aggressively as a result of growth, new regulations and compliance requirements. Companies in 2011 will continue to structure compensation based on performance (stock bonuses, bonus deferrals, phantom equity).  Lastly, firms will continue to rely on trusted recruiters to screen out candidates as hiring standards will remain highly selective.

What words of wisdom would you offer to companies or professionals for the New Year?

First, don’t take a day off with your career – life is not linear and, as such, you should always stay networked, keep your resume updated and be proactive. Second, become an expert – build your future by becoming known as the go-to person in your industry.  It will ensure your job security.

And finally, think like an entrepreneur – market your personal brand both internally and externally.  Performing quality work is expected but promoting your quality work moves you ahead.

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