The 20 Rising Stars of Hedge Funds 2008

continue, subject to shorter-term market vicissitudes, according to Adam Zoia, managing partner of Glocap Search, a New York search firm that serves the industry. Tom Kellerhals, senior partner at the Westminster Group in Chester, S.C., added that a shortage of marketing and client service professionals with experience in hedge funds has pushed up compensation by 20% this year. To be sure, hedge fund pay isn't immune to the turmoil sparked by the collapse of subprime mortgages and a range of other debt instruments. "If the hedge fund market's returns are down this year, then of course compensation will not be up," Zoia observed. Less buoyant market conditions also make it hard for portfolio managers to nail a guaranteed compensation hike when switching employers. Although jumping from a smaller fund to a larger one should still pay off, the reward now is more likely to take the form of a reasonable - but uncertain - expectation, rather than a straight guarantee. One year ago, a strong manager at a smaller fund wouldn't jump to a larger rival without a pledge of first-year compensation that was 15–20% higher than he'd been making before, said Sanjeev Sharma, a recruiter at Michael Page International in New York. Now, guaranteed minimum pay might be set at only half the employee's prior-year earnings, but that doesn't mean a pay cut. Managing more assets with better research and marketing support puts the manager on track to generate a larger dollar profit, and in turn take home more money than he did before. On the other hand, he won't have much cushion if the portfolio tanks. A Lucrative Formula Investment banks favor discretionary bonuses based on a range of factors, including overall company profit. At hedge funds, the dominant component of most portfolio managers' bonus formulas is a fixed percentage of their returns. This gives managing a hedge fund an entrepreneurial character. Compensation is subject to greater risk, but spectacular rewards are possible if the fund performs well. "You're working with very smart, hungry, driven individuals," said Kyle Ramkissoon, principal and founding member of IJC Partners, a New York recruiter. “Hedge funds are all about performance, and your bonus is tied to that performance. Unless you're in operations, you're part of that P&L generating machine. So going to the buy side represents an opportunity to contribute more and be rewarded more for your contribution, hopefully." According to Alpha Magazine's annual rankings, in 2006, at least 25 individual hedge fund managers earned more than $240 million. Three of them got more than $1 billion each. The source of their riches – incentive fees of 20-30% or more of the investment income their funds produce – is often MAY 2008 shared with employees, especially portfolio managers, through compensation formulas. The biggest packages go to managers responsible for portfolio decisions. However, anyone can share - and we mean really share - in the wealth. One headhunter told of an analyst whose discretionary bonus topped $10 million in 2007. With just four years of experience, he was rewarded for recommending an investment that made a major contribution to his fund's return. Today, a growing number of funds are extending formulabased bonuses to analysts and even support professionals. "Firms are becoming more sophisticated about compensation throughout all their ranks," observed Sandy Gross, founder and managing partner of Pinetum Partners, a hedge fundfocused search firm in Greenwich, Conn. "To retain employees, they're starting to give up a little bit more on the economics." One popular method is ‘phantom stock’ awards, which link compensation to a formula based on returns generated by all the employer's funds. In the last two year in particular, compensation even for fairly junior investment professionals has increasingly become a matter of mathematical formula, Zoia noted. This is occurring at the senior analyst and analyst levels, as well as for department heads like the chief financial officer and head of marketing. In these cases, a portion of compensation is set by the formulas, although there's also a discretionary part, he said. He's also seen more funds share a portion of the management fees collected, which apply to assets managed, instead of just incentive fees, which apply only to returns or profits a portfolio generates. Most often, added Ken Murray, president of search firm Mercury Partners in New York, formula compensation is seen at smaller hedge fund firms. It's less common among the largest firms, which cater to institutional investors. When expanding into a new market or strategy, both large and small fund companies may hire an accomplished senior portfolio manager who shares directly in the venture's profit. These arrangements, known as ‘platforms,’ operate like separate subsidiaries whose portfolio manager has the equivalent of an equity stake: the manager pays all staff and other operating expenses from his fixed share of the new fund's returns and keeps what is left. i eFinancialCareers, a Dice Holdings company, is the leading global career site network for professionals working in the investment banking, asset management and securities industries. The website provides financial services professionals with job opportunities, job market news and analysis, salary surveys and career advice. Our mission is to help our customers source and hire the most qualified financial services professionals and to provide those professionals with the best job opportunities in their field. For more information, visit eFinancialCareers.com or call us at (800) 380-9040. HEDGE FUND RISING STARS 11 http://eFinancialCareers.com http://eFinancialCareers.com http://eFinancialCareers.com

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The 20 Rising Stars of Hedge Funds 2008 Contents Looking Great for 2008 A Matter of Supply and Demand Return Performance Highlights Challenging Period 20 Rising Stars of Hedge Funds Mentors' Page

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