Hedge Fund Competition for Top Talent
June 5, 2023
- Competition for Talent: Hedge funds, especially the larger ones like Millennium Management, Citadel, Point72 Asset Management, BlueCrest Capital Management, and Balyasny Asset Management, are currently engaged in intense competition for top traders. They are offering highly attractive incentives to hire and retain these professionals. For example, Millennium Management provided a one-year paid sabbatical to a portfolio manager to prevent him from joining a rival firm. Contracts worth $10 million to $15 million are becoming increasingly common, and there have been instances of guaranteed payouts exceeding $120 million to lure senior portfolio managers. This intense competition for talent is due to the limited pool of skilled traders and the increasing demand for steady returns in a volatile market1.
- Higher Fees: Due to the costs associated with attracting and retaining top talent, hedge funds are charging their clients higher fees. This increase is also a result of the larger hedge funds’ outstanding performance records, which are attracting more investors. The traditional 2% management fee has been surpassed, with some of the largest multi-manager platforms taking the majority of the trading profits. However, despite these higher fees, the net performance of the largest firms is still attracting investors1.
- Recruitment from Rival Firms: Many hedge funds are recruiting talent from each other, sometimes even convincing traders to close their own firms to join them. They are also devising ways to retain their traders, such as through multi-year non-compete agreements and offering more than just financial incentives, like a collaborative culture and greater tolerance for explainable trading losses1.
- Retention Strategies: To keep their traders, hedge funds are using strategies like deferring payouts and implementing longer sit-out and non-solicitation restrictions. For example, BlueCrest defers payouts by two years and those who break their contracts lose these awards. Citadel also has a multi-year deferral program, which allows staff to invest in Citadel funds1.
- External Arrangements: When efforts to hire the best traders fail, large hedge funds like Millennium are giving money to smaller firms to manage externally. This strategy allows them to tap into top trading talent without the traders being directly employed by the hedge fund1.
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