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By: Hellen Zaboulani
Top hedge funds have been doling out eye popping incentives to keep their best traders from moving on to work for rival firms.
As reported by Crain’s NY, the world’s biggest hedge funds are dishing out big bucks and creative rewards to retain their top traders. Apparently, there is a limited pool of talent and surging demand for their services, with more firms seeking out steady returns in today’s volatile market. Similar to bidding wars that ensue when an NBA player or Premier League player gets another offer, the hedge funds are willing to pay and do almost anything to keep their star performers—with clients ultimately left to foot the bill.
While hedge funds have historically offered exorbitant payouts, it seems like the current trend is taking matters to a whole new level. For example, when Millennium Management, led by Izzy Englander, was notified by portfolio manager David Lipner that he was quitting, they made him an offer he couldn’t refuse. As per Crain’s, the $58 billion Midtown-based hedge fund giant offered Lipner, who had been with the company for over a decade, a paid one-year sabbatical as well as an incentive upon his return.
Last year, another major New York fund promised a senior portfolio manager over $120 million in guaranteed payouts to lure him, said one headhunter who boasted doing several deals which paid in excess of $50 million. Contracts worth $10 million to $15 million are becoming more commonplace for traders at top firms including Millennium, Kenneth Griffin’s Citadel, Point72 Asset Management, BlueCrest Capital Management and Balyasny Asset Management. The bigger firms earning billions, consider it worthwhile to do whatever it takes to keep their star traders, rather than suffer billions in losses or put out less than competitive returns.
At the same time, the overperforming hedge funds, which enjoy a waitlist of investors, have been charging clients well over the traditional 2% management fee. The hedge funds even got a boost last year, substantiating their hefty fees, thanks to a study by Barclays Plc’s Capital Solutions group. The study examined about 290 hedge funds and their fees, revealing that the industry’s biggest names, which charge the highest fees, tend to produce better returns over time. Published in 2022, the data showed that over the last three years, after-fees investors made returns of 11.8% with pass-through billing versus 6.4% from firms without pass-through billing. Over the last 10 years, investors in the high expense funds earned an 8.2% annual return, versus 5.8% earned from the low fee funds, Bloomberg reported based on the Barclays research.
In the current financial environment, talent is harder to come by than investors. “In a world where there’s a lot of liquidity, the bigger challenge in developing a platform business is investing in talent rather than attracting capital,” said Chris Milner, Chief Operating Officer of London-based Eisler Capital.
