Large hedge funds offer more job opportunities. But if you want to get paid well, apply for a role at a mid-sized firm.
According to data from the UK Hedge Fund Top 200 report from provided exclusively to us by research firm Hedge Forensics, big firms such as Bluebay Asset Management, BlueCrest Capital Management, Brevan Howard, Winton Capital and Man Group don’t pay as much as smaller or mid-sized companies. Mid-sized funds have lower overheads while still having the infrastructure to attract investors.
“More profitable smaller firms often pay their principals more and they tend to reward the junior staff better,” says Hedge Forensics. “You are much more likely to get a job with one of the big players simply because they have more jobs to offer, but if more money is your main motivator, you may be better off moving to a successful smaller firm thereafter.”
This year, Man was the biggest payer among the big UK hedge funds with an average of £211k per head, followed by Brevan Howard (£207k) and BlueCrest (£130k), says the research. The chart below illustrates the five biggest hedge fund employers in the UK – and their average pay per head over the past two years.
These figures are not insubstantial, and it’s likely that many people will earn a lot more than this, but the chart below shows that there are still at least 40 UK funds paying an average of over £300k. Many of these are smaller or mid-sized firms, says Hedge Forensics.
Targeting smaller firms is one way to increase pay. Another is working at a US hedge fund, where pay outstrips that in the UK. According to a new asset management survey by consultants Greenwich Associates and Johnson Associates, average pay for fixed income hedge fund professionals is likely to be $940k (£584k) in 2012, up from $890k in 2011.
Joining a smaller fund is, however, something of a gamble. As many prop traders starting their own hedge funds are finding, regulatory compliance demands are growing (particularly in the US) and the operational issues of running a business means that it’s no longer viable for a couple traders to just lease a Bloomberg terminal and set up business.
Investors are demanding that hedge funds have an “institutional infrastructure” in place, which limited new small fund launches during to 245 globally in the second quarter of 2012, according to Hedge Fund Research.
The best option, therefore, is a mid-sized firm – think between $1-3bn in assets under management – which has the financial clout to handle the compliance pressures, but is small enough to distribute the profits more easily.
“Although there are some economies of scale in the hedge fund business, our research suggests that beyond a certain point, diseconomies of scale kick in,” says Crosley Williams, head of research at Hedge Forensics. “It could be that the regulatory burden weighs heavily on the smallest firms, and medium sized firms can amortise this expense against a bigger asset base; but the very big firms need even bigger systems, back offices, compliance and such and have an even tougher regulatory and reporting burden.”
Some of the big funds have been recruiting. Brevan Howard has been hiring in the UK, most recently Nicholas Glinsman, who previously ran the Armajaro Natural Resources Fund, but has been focusing its recruitment in the US. Bluecrest and Winton have also been building their ranks.
Man Group, the UK’s biggest hedge fund employer with over 1,600 staff, is in the midst of a fresh round of job cuts as it attempts to save an additional $100m.
In the last six months, though, mid-sized hedge funds have started to hire again after a hiatus of about 18 months, says Barry Seath, managing director of hedge fund specialist Mirage Recruitment.
“In the front office it’s been a buoyant few months for funds focusing on equity long/short or special situations, but we’ve also seen an uptick in compliance, sales and risk roles across most mid-sized funds,” he says.