“Relative to others in their firm, over 50% of the survey respondents identify themselves as either the most or somewhat senior person in the firm. Considering that 60% of respondents stated that they had been with the current firm for 2 years or less, relative seniority may demonstrate an increasing number of new firms, the effects of turnover or both.”
From the HFSD 2007 Hedge Fund Compensation Survey
Bob Olman is a noted speaker on careers in capital markets and the founder of Alpha Search Advisory Partners (www.alphasearchadvisory.com), a top recruiting firm to the alternative investment community, based in NYC with offices in London and Singapore. This is the first of a two-part discussion with him.
What’s your favorite interview question?
“Give me an example of a trade idea you put on in the past year that you were correct on, and one that you were wrong on; what was the approach and how did you develop your position?”
What is distinctive about working with the very best candidates in the market?
What makes a candidate good is their success in trading their strategy. Working with the very best candidates in the market is a double-edged sword. They are easy to place because their successful track records speak for themselves. If they have been successful, however, they often have very little reason to leave their current employer, as they are typically well taken care of.
Mike Rothenburg recently told us how his background in engineering and consistent interest in finance and management led, in 2006, to launching Hi-Tech Futures with two colleagues.
Tell us about your firm, as you would tell an investor.
We’re a small Commodity Trading Advisor and Commodity Pool Operator. We’re certainly considered an emerging manager, with a registration that only goes back about a year and a half. But the experience of our principal and of the individual who does the trading extends far past that. He was trading proprietary funds for a number of years while he was developing a trading system. We legitimized that into something we could offer to our clients over the last year and a half.
Probably two things to point out are, one, that we have a real focus on risk management. Anybody can trade, be it futures or equities. Anyone can make financial investments. But if they’re not managing the risk, the potential for ruin is there, particularly in something as highly leveraged as commodity futures. Second, is maintaining strong compliance, and that really pervades our culture. We’re a very casual group; we’re a very small group. We don’t have a large corporate bureaucracy by any stretch, and we’re able to make decisions pretty quickly. But everything is toward maintaining a professional operation in terms of Risk Management and Compliance.
Something else about the team?
The principal has been a commodity broker since the early 1990s. He’s an entrepreneur in the computer industry, when you could actually make money putting computers together in your garage. But as that industry matured, he gravitated towards trading and introducing brokers to the futures industry. Since 1999, he developed a lot of his skills in the trading arena. He started out trading for his own accounts, like a lot of guys who may be able to grow it from there, because, one, they are good traders and, two, they can manage a company or find those that can.
It sounds like an email proposal your spam filter would catch, but this scam really worked, for a time. “[Yalincak] and her son, Hakan, then a student at New York University, convinced investors to pour millions into a non-existent hedge fund, with Hakan posing as a wealthy Turkish heir to gain entrée to Greenwich’s monied circles.” The two Turkish nationals have been imprisoned and face deportation. Read more.
“Longevity with the firm plays an important part of an equity award and most survey respondents have less than four years with the firm. 20% of respondents said they have received equity in the firm. Awarding equity in the company also seems to depend partly on job title. Nearly half of the COO and CFO players have equity, while less than a third of the Portfolio Managers share in that upside. While a vesting period for the equity is not standard practice, many respondents commented on their equity coming to them over time.”
From the HFSD 2007 Hedge Fund Compensation Survey
Prime Consulting International (www.pci-search.com) is Stewart Koenig’s NY/CT-area recruiting shop. He recruits technology professionals into the financial world, doing up to 50% of his business with hedge funds.
Tell us about your firm.
The focus is the capital markets arena, both buy side and sell side firms. Hedge funds make up about 30-50% of our client base at any given time. Our functional areas are IT and risk management, from the most senior levels down to support positions.
The hallmark of our candidates is their in-depth understanding of the business, in combination with strong technical skills. We also have a fairly good depth in quantitative developers, again with strong business knowledge, which made our transition into Risk Management fairly easy.
And your geographic coverage?
We are in Westchester, right between NYC and Greenwich, CT. Between the two, we probably have over 50% of the hedge funds in the country within a 30 minute drive. But we have clients located all over the US. We have had a couple of US clients who opened up shop in the UK and have asked if we could help them from time to time.
What persuades people to leave a position, when they’re not actively job-hunting?
Usually it’s a few little things, and a lot more money. The client knows up front that it’s going to take quite a bit to motivate him or her to move. From the candidate’s perspective, it’s a time to move to a better firm, negotiate a bigger compensation package, and gain some extra quality of life perks, like vacation time or some remote working capability. I’ve even seen country club memberships thrown in.
From the HFSD 2007 Hedge Fund Compensation Survey:
“Respondents generally said their fund performance was solid. Over 50% said their fund had good to excellent performance. This was also supported by Morningstar reporting solid hedge fund performance for the first half of 2007; maintaining an edge over the S&P 500 Index. Paradoxically, the favorable industry performance may have generated some of the negative feelings gathered in the compensation section of the survey. When the fund is doing well, team members expect to share in that upside. A negative reaction can result from either a poorly designed bonus and incentive plan, or the absence of one altogether.”
Paulson & Co., a $28b credit hedge fund, has recruited Alan Greenspan to its advisory board. The fund has profited by an estimated $12b from the subprime crunch. Greenspan’s advisory engagement is to be exclusive.
We recently spoke with Scott Raybin, general partner at Cani Capital Management, a Florida-based hedge fund.
How did you get where you are now?
I started off as a stockbroker working at Smith Barney back in 1993. I went into private equity in 1998, raising capital. In 1999, I worked at one of the largest day-trading firms in the country. I saw that there was a lot of money in trading. I raised my own private equity and started my own company with a partner of mine, building mathematical trading algorithms. We raised several million dollars and then in 2005, began the structure of a hedge fund — we were specifically going into a quantitative hedge fund — and here we are in 2007.
If you couldn’t be in financial services, what you would be doing?
I really don’t know. I was in the Academy of Finance in high school, looking at stocks, so I’ve been interested in this for over 20 years. This is all I know, probably all I will ever do.
Is your story typical?
Most people who are in hedge funds have been in Finance for the last 10 or 15 years. There are so many components to a hedge fund. You have to know how to raise capital; you have to know compliance; and then you have to understand trading. I’ve done all three of those things, and that’s why it got in to me to be the general partner of my hedge fund.
Tell us about your team.
Out of ten people, four are in management, two are traders, and four are developers.
From the Hedge Fund Search Digest 2007 Hedge Fund Compensation Survey:
The following comments represent individual responses to the question: “Are you happy with your overall compensation? If not, what areas are you unhappy with?”
“Certain roles should have fixed bonus’ prior to considerations of fund performance.” (CFO)
“We are a new firm, so base and bonus are lower than industry average in anticipation of being part of future growth and an equity stake.” (Analyst)
“Not happy at all, looking elsewhere, PM is very stingy!” (Trader)
“…capped performance based incentive.” (Trader)
“I want a percentage of the performance fees earned that is based on a market related
formula, providing a direct incentive between pay and performance.” (Portfolio Manager)