Hedge Funds Need Back & Middle Office Staff
Institutional investors will account for an increasing percentage of the client base of hedge funds over the next three years. That’s according to a Pensions & Investments report, which cites a Lipper Hedge Fund Survey. That means the hedge fund industry must adapt to grow its institution business. Hedge Week reports that a separate study released by SEI finds that as hedge funds increasingly look to the institutional market for asset growth, they must equip themselves to fit the high expectations and conservative attitudes that characterize institutional investors. In short, they must hire the staff necessary to satisfy even the most diligent investors.
New hedge funds launched last year alone raised $31.5 billion in assets, according to Absolute Return as reported by Reuters. Now, despite the credit crunch and economic worries, executive search firm, A.E. Feldman, says that continued growth of assets under management at hedge funds is opening doors for back- and middle-office staff. Opportunities exist in fund accounting and fund administration as well as investment operations.
The majority of the hedge fund managers polled in the Lipper Hedge Fund survey, 64%, estimates that institutional investors will comprise 30% of their client base. Another 38% believe that number will grow to 50%. Hedge Week reports that a study published by SEI finds that hedge fund assets under management have been growing at a compound annual rate of 26% since 1990, with much of that growth coming from the institutional market.
As hedge funds increasingly look to the institutional market for asset growth, they must adapt to meet the high expectations of institutional investors. Hedge Week quotes Paul Schaeffer, Managing Director of Strategy and Innovation for SEI’s Investment Manager Services Division as saying, ”To maintain that growth trajectory, the hedge fund industry will need to branch out from its traditional high net worth, foundation, and endowment clientele to serve the broader institutional market. But to compete for those assets, the industry must recognize that large institutions have a distinct set of demands concerning issues such as the quality of infrastructure, transparency and risk.”
SEI identifies a number of challenges hedge funds should address in order to attract more institutional assets, reports Hedge Week. Topping the list: the need to demonstrate institutional-quality infrastructure and operations. Nearly half, 46% of those polled, say infrastructure is the top criterion in hedge fund selection.
SEI says another challenge hedge funds face is building stable management teams with a full range of skill sets. Respondents ranked ‘people at the firm’ as the third most important factor in hedge fund selection. The survey also shows that investor concerns about hedge fund staffing are not confined to those making investment decisions, but also include key management and support positions, including back and middle office staff.
A.E. Feldman contends that growth in assets under management continues to pad demand for personnel ranging from risk management and accounting to legal and fund administration. The firm says that as investors boost their exposure to hedge funds, candidates who have a comprehensive understanding of the risks and benefits of the various asset classes and investment strategies will be in a position to gain from the trend.
