Look for increased competition next year in finding top hedge fund talent, according to HF recruiter Long Ridge Partners. "Based on an informal survey of hedge funds with more than 10 employees, all the firms we spoke with predict trends in compensation to be more competitive in 2007, and do not foresee any catalyst happening in the upcoming year to change said," said Michael Goodman, a partner at the New York-based firm. Among the foreseeable trends:
- Profit and loss payouts will rise by between 8% and 20%, with one fund shelling out 3% to 5% for managers with more than $500 million in allocations. The average payouts will increase about 15%, up from 12% this year.
- Proprietary desks will pay out between 10% and 12% of P&L to hold on to talent, similar to that of traditional hedge funds.
- Most management companies will be charging back the cost of capital and direct staff, including research analysts and traders, to individual portfolio managers. Management companies will also add other services to the portfolio manager, including risk management, operations and marketing of specific funds.
- A small handful of funds will negotiate with portfolio managers and pay them a management fee on assets they are allocating or have allocated to them. This, according to Long Ridge, is a way for smaller hedge fund with less to offer in terms of infrastructure and capital to attract talent.
- Management will be increasingly willing to negotiate the launch of a portfolio manager once he or she has reached ‘critical mass.’ This can take the form of offering capacity to owning a piece of the management company, or both.
