The Hedge Funds Are Hiring

The basic thesis of the big multistrategy multimanager “pod shop” hedge funds is that investing talent is real, identifiable and scarce. There are people who are reliably good at buying stocks that will go up and selling stocks that will go down; they have an investing process that works, so if you give them a billion dollars to manage they will earn steady market-beating returns. The big hedge fund firms are essentially in the business of finding those people; they have a investor hiring process that works — they’re “a massive filter of talent” — so they can run tens of billions of dollars of assets and allocate them to the best possible investors. But this talent is rare, so the people who have it can command a high price, generally 20% or more of the returns they generate, often with tens of millions of dollars guaranteed. And because it is so rare, the big funds have to constantly poach people from smaller funds, and from each other, to fill their seats and generate returns for investors.

One amusing irony of this situation is that hedge fund manager talent is artificially scarce. Perhaps there are, say, 5,000 good portfolio managers in the world. How many of them are managing portfolios at any given time? On some plausible assumptions the answer might be 3,000. At Business Insider, Bradley Saacks reports on the hedge fund talent competition: