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Money Industry Faces War for Talent'


The investment management industry is in the midst of a "war for talent," according to the "2005 Recruiting Trends" report from executive search firm Russell Reynolds of New York. Those in greatest demand are chief financial officers and chief operating officers at U.S. hedge funds, as well as client relations and marketing people at investment firms across the board.

There is also an increasing sense of urgency in growing assets under management, therefore raising expectations for qualifications of portfolio managers. Many companies are now demanding that portfolio managers have PhDs, CFAs, MBAs or other advanced degrees.

Additionally, at a time when profit margins are being squeezed and the markets are expected to deliver single-digit returns for the foreseeable future, more firms are looking for chief executive officers who can grow top-line revenue and at the same time, bring down expenses. "Historically, CEOs were held most accountable for top-line growth. In an era where that top-line growth was frequently in excess of 20%, there was less focus on expense controls," said George Wilbanks, managing director at Russell Reynolds. "With market appreciation no longer driving these longer-term growth rates, boards and owners have started to focus on expense controls."

The Hot Hires'

In addition, the growing interest in alternative asset classes has sparked a few director-level searches, and the demand is really high when it comes to endowment and foundation chief investment officers.

"U.S.-based firms with primarily domestic U.S. assets and clients are still hiring very selectively, but only in the key functions sited in the report," Wilbanks said. "Global firms, those that have extensive assets and clients outside the U.S., have been buoyed by strong markets, and are hiring more aggressively in both the U.S. and abroad," he added.

Those who are knowledgeable when it comes to a fund's investment program are very much needed in the industry, to serve as a proxy for portfolio managers. Also, the demand for managers who have a good, stable relationship with both endowments and foundations is very high.

Many hedge funds are looking for the types of executives who have a flexible, empathetic business style, who can overcome cultural boundaries. These types of executives are needed in the management of in-house teams and for partners and clients as well, because the U.S. is a melting pot, the report noted.

However, these attributes are not the only thing hedge funds look for when hiring executives. Special skills are also necessary. Individuals with expertise in derivatives, optimization, risk and performance analytics are in high demand right now, because this type of knowledge goes well beyond the traditional demands for an advanced business degree or CFA.

As the hedge fund universe becomes more crowded and managers begin to take more long-only positions, hedge funds have also begun to look for portfolio managers with a long-term outlook as a more feasible talent pool.

As for the larger hedge funds that have more than $500 million in assets, they have been inclining towards expansion, with many companies opening offices in London, Hong Kong and Tokyo, and employing oversees and emerging-markets analysts here in the U.S.

The search for sales-related jobs is up 50% or more from just two to three years ago, according to the global report. At any time during the year, Russell Reynolds could point out at least 10 to 15 open positions in the field. Also, banks, brokers and boutiques are always looking for professionals with high-net-worth clients.

Due to the rise in regulatory action in the hedge fund industry and the Securities and Exchange Commission's pending requirement that they register with it, the need for compliance executives with hedge fund experience has also been on the rise.

In light of the recent fraud, compliance has become more and more important, and the demand for CCOs at hedge funds, mutual funds, pension plans and separate account specialty firms has grown, as well. "Many CCOs in 2004 were promoted internally," Wilbanks said. Some firms are now looking to outside talent to fill the role of the CCO along with additional compliance staff. "Demand is further challenged by diversified financial services companies, banks and insurance companies, which are all hiring compliance professionals from the same pool," he concluded.

Mutual Fund Hiring Trends

Among mutual fund companies, Wilbanks added, some of the biggest trends are "hiring global, international and emerging market-analysts and portfolio managers, hiring compliance professionals, and hiring professionals involved in advice and guidance business models, most obviously the separately managed account business. There has also been a surge in hiring mid-level wholesalers at a select few firms to fill out the ranks that were paired back between 2001-2003, he added.

Next would be succession planning, which focuses on thinking ahead for the leadership in the firm's future. This is an excellent way to build bench strength, especially for smaller funds.

Finally, the investment management industry is going through a period of compensation restructuring. Fund performance used to directly affect manager salaries. However, as the role of bonuses has weakened, guaranteed compensation is making its way back into the industry, and some firms have even reintroduced multiple-year guarantees for the first time since 2000. In fact, Russell Reynolds handled a number of CEO and COO searches this year where their guaranteed salaries are between $2 million and $5 million, and at a handful of firms with $100 million or more in assets, their CEOs are earning $10 million or more.

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