The recession of 2008 and 2009 was defined by losses for certain investment strategies as well poor performance at many funds. These losses were so deep that they spread throughout many funds, negatively impacting talented people who personally performed well.

As a result, there is a tremendous opportunity to attract high performers who: 1) have been displaced through no fault of their own and 2) others who have seen their earning potential blunted.

Over the last two years, many high performers have been stuck inside funds that are still below their high water mark. Eager to retain the top talent they will need to dig out, but lacking the funds in their incentive pools to pay them, these struggling funds have been paying minimum guarantees out of their management fee.

Today, frustrated by their present income potential, skilled professionals are much more open to hearing about opportunities to make a move that will secure their future—but only with secure funds.

There are two specific triggers motivating candidates. The first is the threat of a lockup expiring at their current fund. Some candidates fear that significant redemptions will weaken their fund even further and may want to leave before it happens. The second trigger affects firms that “raised their gates.” Some candidates are concerned that their funds have harmed their credibility and potential to raise new capital by placing these types of restrictions on outflows during tough times.

All this is setting the stage for a new kind of capital outflow from weak funds: human capital in form of their most talented professionals.

Stronger funds—that are above their high water mark and know where they stand in terms of capital—are in a unique position to take advantage of this evolving hiring market.

Three years ago, large guarantees were required to attract top investment professionals. No longer.

Having spent the last few years with limited capital to work with, candidates now understand that the best opportunity is a healthy firm with a stable capital base that is at above its high water mark.

Strength is the new guarantee.

To have a deeper discussion on the latest compensation trends in the hedge fund industry, please call:

Michael Garmisa
Founder
SearchOne Advisors