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Industry leaders on the future of the hedge fund industry



Chapter 3: Preparing for the future

In order to contend with the multiple disruptions they face hedge fund firms are changing the way they work internally, from whom they hire to how they serve their investors. In order to remain competitive and position itself for success, the hedge fund firm of the future will need to adopt new, innovative approaches towards its talent, its products, its partnerships, and its value proposition.

The right stuff

Key takeaways

Hedge fund firms are having to compete harder than ever for talent, as the industry comes into direct competition for talent with the technology sector.

Hedge fund firms will need to foster greater internal collaboration and diversity in their workforces.

Hedge fund firms are increasingly looking to institutionalise themselves and outlast their founders.

Hedge fund firms are discovering that the industry’s old approaches to hiring and retaining talent need to change. Consequently, they are increasingly hiring quantitative talent, a shift that is moving the hedge fund industry into direct competition with the technology sector, forcing hedge fund firms to rethink how they deploy and retain their talent. The cumulative effect of these changes is that, at least when it comes to talent, the hedge fund firm of the future may look more like Silicon Valley and less like Wall Street: flatter, more collaborative, and more diverse.

Hedge fund firms need employees who can run the new statistical and computational technologies that are rapidly becoming necessary to compete in the industry. Rather than hiring traditional financial talent, hedge fund firms increasingly prefer to hire employees with a deeper understanding of statistics, mathematics, and computer science straight from university. The new quantitative talent, Anthony Kaiser (Founder, CEO, and CIO, Kaiser Trading Group) explains, is “less traditional, and more scientific—think physicists, not economists.” Once hired, these new employees are trained in finance under the assumption that, as Philippe Jordan (President, CFM) explains, “it’s a lot easier to transform a scientist into an MBA-type person than the other way around.”

This is not to say that the industry’s demand for financial talent has disappeared; hedge funds firms still need people who understand financial markets. Ironically, some hedge fund principals say that finding those people is becoming more difficult, thus increasing the demand for them. This difficulty is partly caused by more university students electing to go into quantitative disciplines rather than studying finance. It is also being driven by changes that are taking place across the investment banking industry, which has traditionally provided the hedge fund industry with talent. As both Stuart Roden (Chairman, Lansdowne Partners) and Luke Ellis (CEO, Man Group) note, investment banks have become more risk-averse since the financial crisis, sharply curtailing the autonomy of their analysts and limiting the amount of experience that they can gain.

Hedge fund firms are also realising that they need to hire not only a diversity of talent, but also from a diversity of social backgrounds. The hedge fund industry’s struggles with diversity are well known. Only 5% of hedge fund portfolios are managed by women, and talent has historically been drawn from a relatively small, elite circle.1 This lack of diversity can have harmful effects on the quality of a firm’s decision-making, fund performance, corporate culture, and even investor relationships. Hedge fund firms recognise this problem, as well as the need for change. As Luke Ellis explains, “we’re not looking for a bunch of people who went to the same universities and worked at the same firms. A business made up of individuals who think more or less the same is not going to get you alpha in our view.”

The good news is that hedge fund firms are not, despite what some have said, short of talent. There is a growing pool of available quantitative talent from which to hire, as university graduates naturally move to more lucrative degree paths. Philippe Jordan is not alone when he says that his firm has an “enormous pipeline of talent to choose from.” Further, for many top graduates, finance is simply what interests them most. As Tom Hill (Chairman, Blackstone Alternative Asset Management; Vice Chairman, Blackstone) notes, “if you are passionate about the financial markets, the hedge fund model provides you with the most tools and flexibility to demonstrate your capabilities.”

The bad news, however, is that hedge fund firms have to compete harder for the top talent, according to Seth Fischer (Founder and CIO, Oasis Capital): “hiring the best is harder today than it used to be.” The industry’s demand for quantitative talent is increasingly bringing it into competition with the technology industry. Like hedge fund firms, technology companies have an insatiable demand for quantitative talent and a willingness to pay handsomely for it. Further, the technology industry is considered by the general public to be more socially responsible, and at least as lucrative, as the hedge fund industry.



On the importance of quantitative talent for the hedge fund industry

Brilliant people are still being attracted to work in the hedge fund industry. They tend to have different job profiles from my days though. I’m a history graduate with A-level maths. Now there’s much more of an emphasis on hiring quantitative talent and on securing people with a higher emphasis on their mathematical skills; the mathematicians we hire these days could run rings around me.

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