Hedge fund risk management, long a cost center that was handed off to the back office or outsourced to vendors, has been transformed into a booming front office business unit, according to Michael Yavelberg, managing director at GloCap Search in New York. “Multi-billion dollar hedge funds that were previously running reports and/or using vendors now have entire business units dedicated to this,” Yavelberg said. “It’s a space where in actuality there aren’t enough bodies for the amount of jobs.”
Driving the shift is the prevalence of quantitative research and analysis at hedge funds. Here hedge funds--and investment professionals in general--are starting to use quant research the same way they have historically used fundamental research, said Yavelberg. The idea is to translate the complex quant data into a language that a portfolio manager can understand, he explained.
As a result, there are now a number of different responsibilities within risk management, including researchers and programmers but also staff to work directly with portfolio construction. A director of risk management--whose pay package can be north of $500,000, according to Yavelberg--generally sets up this infrastructure. “I’ve seen funds in a very short amount of time build an entire team of risk managers.”