Seed of Change

In the last 6 to 8 weeks we have seen numerous positive signs which reaffirm our belief that the Alternative Investment Class may be entering a Golden Age and that the hiring climate is improving for professionals seeking a new role.  There are two related actions taking place which have a significant correlation to the hiring climate in the Private Equity and Hedge Fund sectors.

In the past few weeks, many institutional investors have publicly announced new allocations into numerous strategies within the Alternative Investment category including Hedge Fund and Private Equity strategies.  While these allocations have been long awaited and cannot come fast enough, this action is an extremely positive sign for our industry. Even more positive regarding these allocations is the fact that many are not only new but first time allocations into the alternative space for these investors. As we have mentioned in previous articles, investors are making these allocations because their present and future return requirements necessitate significantly more alpha.  Even more intriguing and positive for the industry, is that these allocations are not driven only towards large established players.  There are many seeding initiatives being announced creating opportunities for new funds to be established. 

Firms such as SkyBridge, Tiger and Citadel have announced new seeding programs.  This is an area of investing which has been scarce for the last two years but is imperative for the future growth of the Alternative Investment industry.  The new seed programs will most likely look for talented professionals interested in starting their own shops while being offered the institutional platform the fund will need to raise additional capital from investors. When these new funds are seeded, they will, in many cases, need to bring on additional head count especially in the area of investments and marketing.  Additionally, infrastructure roles will be needed at the new firm level and/or within the large platforms providing infrastructure to the firms.

Raising assets is still a challenge, but I believe these recent allocations are only the beginning of what will be a significant increase in Alternative Investment allocation announcements for the 2nd half of 2010 and first half of 2011. As we have mentioned before, Private Equity firms tend to hire when new funds are being raised and new capital needs to be deployed.  Although Hedge Funds are more concerned with performance when considering new hires, new capital and asset raises do play an intricate part in their hiring plans.

Furthermore these new allocations seem to be coming primarily from larger public and corporate pension plans.  This is significant because these firms typically lead all institutional investors when it comes to investment policies. Hence, if these firms are starting to make new allocations it is likely investment consultants will begin to instruct their smaller institutional clients to follow suit.  And as the need for more alpha is a necessity, the trend will continue across the board. With the amount of capital on the sidelines (some believe $1 trillion plus dollars) the actions of the largest players/investors are a noteworthy event and optimistically foreshadow positive changes for the industry.

If less than half of those supposed sidelined funds go into the Hedge Fund space, the hedge fund industry would be very close and most likely above the $1.9 trillion peak that fund assets reached in 2007.  Attaining that level of funding will require significant hiring in the Hedge Fund space.  Though technology and the new platforms offered by service providers has made firms more efficient and effective,  the industry will still require a considerable increase in headcount to manage that asset base.

As the events of stated allocations to established funds and seeding new funds turn into actual investments, I believe we will see a related upturn in hiring in both Private Equity and Hedge Fund strategies.  Though it will take some time for the hiring to catch up to the allocations and investments, it is certain that new and experienced  talent will be required to manage and maintain the new assets that will be put into play.

© 2008 NyamiNyami Holdings, LLC