Hedge Funds

The hedge fund dilemma: Finding the next rock star traders

Hedge fund talent crisis

At a time of poor performance, investor clawbacks and bad publicity, hedge funds are facing yet another problem: students like 19-year-old Shyam Kalairajah.

Kalairajah, who is rounding out his first year at Cambridge University as an economics student, is an aspiring investor in hedge funds. Young, bright, motivated and pedigreed, he's also a choice candidate at a time when many millennials are opting for jobs in Silicon Valley rather than finance. So Point72, the privately run money manager founded by hedge fund titan Steve Cohen, flew him to the East Coast late in May to meet with its recruiters.

The firm was holding its maiden "sophomore summit," a gathering in its Stamford, Connecticut, headquarters of undergraduate students interested in learning about the firm's in-house trading school.

Culled from some 400 initial applicants, Kalairajah, who had stumbled upon Point72's website through Facebook, was one of 20 who was invited that day. He spent the morning in a conference room surrounded by modern art and besuited fellow students, pushing bagels and cubes of fruit around on plates and listening to executives talk about their approach to stock-picking (using data and proprietary research to become "expert pricers"); what they were looking for in new hires (curiosity, "diversity of thinking"); and what they'd encounter if they got into the firm's newly established trading school. It's auspiciously named the Academy (2,000 hours of training; looking for inefficient pricing and learning "how to fail").

Frankly, I'm blown away by the lack of talent.
Steve Cohen
Point72, founder
Point 72 Asset Management.
Adam Jeffery | CNBC

"We want to do a better job on talent. We think we're doing a good job, but it is tough," firm President Doug Haynes told the students after joking around a bit about how he'd like to repeat his own college experience. When it comes to job candidates, he added, "I've interviewed a little over 200 in the past two years from the outside. We've hired about six. If we wait around for people to become interested in the industry, become interested in our firm, we will not have enough to choose from."

At a recent conference, Cohen put it more harshly: "Frankly, I'm blown away by the lack of talent."

So Haynes and Cohen are trying to groom up-and-comers like Kalairajah — who seemed to find the whole experience a bit overwhelming. "The values of the company resonated with me — their focus on research, and also analysis," Kalairajah said during a midmorning break from the undergraduate gathering.

He was standing in Point72's capacious front lobby in front of a painting by the Japanese artist Takashi Murakami called "Isle of the Dead," part of Cohen's celebrated art collection. Having worked at a small investment firm the prior summer in the U.K. and made some money trading on his own, Kalairajah added, "my ideal work would be to work for a hedge fund like Point72. But I think the general perception is, it's very hard to get work for a hedge fund."

Steve Cohen at Point 72 Asset Management.
Adam Jeffery | CNBC

Point72, of course, is not actually a hedge fund; it's a "family office," a private company managing $11 billion in assets belonging mostly to Cohen. But Point72's predecessor firm, SAC Capital, sustained one of the most successful hedge fund runs ever before being effectively shut down after a criminal indictment for insider trading in 2013. After a $1.8 billion settlement that prompted the return of SAC's capital to outside investors, Point72 was established in 2014 with new management, new monitoring technology, and a vow to honor high ethical standards. Nonetheless, its current recruiting headaches may have something to do with its backstory.

And Kalairajah isn't the only undergraduate facing a competitive hedge fund marketplace. Underwhelmed by banking, whose image has been battered in recent years by tales of grunt work, brutal hours and even suicides by younger workers, many of his peers see hedge funds and their like as a more attractive alternative career in finance — that is, if they aren't jettisoning the whole idea to chase jobs at tech companies like Uber, Facebook, and Snapchat.

Their search falls as the hedge fund industry is experiencing its own strains. Last year and this year, hedge funds, on average, have generated fractional or negative returns, according to data tracked by the research firm HFR. Frustrated investors yanked back $15.1 billion in capital during the first quarter of this year, HFR reported, generating the biggest quarterly outflow of cash since the depths of the financial crisis in 2009; in the wake of that, major players like the New York City retiree pension fund and MetLife have complained publicly about lackluster returns.

In a recent earnings call, MetLife's chief investment officer said its hedge fund portfolio has "had up-and-down years and really it's just too inconsistent, we think, in actual performance." As a result, the company will withdraw about $1.2 billion of the $1.8 billion it now has under hedge-fund management.

The total number of hedge funds and "fund of funds," which funnel multiple hedge funds into a single investment platform, appears to be diminishing, according to HFR. And while exact numbers on the head count in the industry are hard to find, recruiters and fund managers argue that their ranks are compressing, too.

For Greg Piechota, a 29-year-old business-school student at Moravian College in Bethlehem, Pennsylvania, who expects to graduate at the end of the year, it's unfortunate timing. Piechota, who has applied for several hedge-fund jobs already, turned to the industry as a rare enticement in a market where the math-teaching jobs for which he had trained were hard to find and the major Wall Street firms were ignoring his e-mails.

"I got into trading about two, maybe three years ago, and it seemed to really capture my interest," said Piechota, "so I figured, what's the best way for me to be able to do this and make money?"

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So far, his application process has been smooth, if not fruitful. The money management giant Bridgewater Associates turned him down for two positions, but he was impressed with their job screening, which included watching videos about the culture of the firm and a typical day there as well as submitting to a Myers-Briggs personality inventory. He also applied for a spot in Point72's big-data analytics group, but was turned down for that as well. (A spokesperson for Bridgewater didn't comment for this article; a Point72 spokesman confirmed receipt of Piechota's application but declined comment on its status.)

For hedge fund executives, the market setbacks and resultant lack of returns are nettlesome enough. But their talent pool is also winnowing. Just as other industries are siphoning many of their most promising recruits, their longtime farm team, the Wall Street banks, have curbed their hedge fund-style trading, leaving hedge funds with fewer experienced bodies to poach.

Feel of the market

"It's not like there's a crop of kids that comes every few years and become great traders," Michael Karp, CEO of executive recruiting firm the Options Group, said in a telephone interview. "It's a very specialized skill set. You have to know your asset class, you have to have experience, you've got to have the feel of the market."

Citadel, the Chicago-based hedge fund firm whose asset-management arm employs 900 people to manage $24 billion in assets, has tried a new tack: recruit tech people to reel in the new hires. Two months ago, the firm brought in L.J. Brock, who ran the so-called "global talent group" and "people infrastructure" at the enterprise-software company Red Hat, to be its "chief people officer." It also sought help from Dolly Singh, a recruiter who spent more than five years finding talent for Elon Musk at SpaceX.

It's always hard to recruit good people. ... You need to sell them on why they need to come work for you.
Ken Griffin
Citadel, founder

"It's always hard to recruit good people," Citadel founder Ken Griffin said at a conference in mid-May. The best hires, he added, "have tier one jobs. You need to sell them on why they need to come work for you."

In addition to picking off experienced portfolio managers and analysts from other firms, Citadel does on-campus recruiting at the undergraduate, graduate, and doctoral levels, said Brock. The long-term inducements of working at Citadel — which has produced double-digit returns in recent years and hosted an anniversary party last year with entertainment by Katy Perry — are essential, he added. "We're inviting them to have a career with us, not just a job," he said. Ninety percent of the job candidates who actually get offers accept them, he added.

Still, Griffin has a reputation for parting ways, sometimes abruptly, with underperformers — as he did earlier this year with Jon Venetos, who oversaw Citadel's Surveyor Capital unit as it was experiencing losses. Regardless of that and other high-level examples, Brock said, "this firm has the lowest turnover I've ever experienced." (Venetos could not be reached for comment.)

Finding a new generation of traders

Steve Cohen at Point 72 Asset Management.
Adam Jeffery | CNBC

Hedge funds go about their hiring in disparate ways. Westport, Connecticut-based Bridgewater, whose $104 billion in capital is the largest hedge fund company by assets under management, has an elaborate online application process that includes a searchable "job bank" and highlights its internal culture of open communication. Millennium Management, the global firm that manages $33 billion, also has an interactive job portal (though, at first glance, it currently has no investment jobs in the New York area). Other firms, like the $15 billion Moore Capital, rely on venues like academic career centers and other professional networks to hire candidates. And still others, like the well-known long-short funds Pershing Square and Greenlight Capital, employ relatively small teams and may not hire anyone in any given year, making issues like campus recruiting less urgent.

Point72, for one, is moving aggressively to find its new generation of traders. Last year, the firm invited 12 people to join the Academy, which meets in the firm's midtown Manhattan offices for a year of classroom teaching. Of that group, one dropped out due to lack of interest, another returned to his native Nepal in the aftermath of its destructive 2015 earthquake, and a third left due to an injury. The nine who remained have been offered full-time jobs at Point72 to begin later this summer (and the latter two will return as part of the new class in August, says a spokesman).

The outreach continues. During a Point72 Academy presentation at Yeshiva University late last year, roughly 100 students showed up, said Jonathan Turek, an undergraduate who attended the event, and many of them were keenly interested in the program. The son of a metals broker, Turek has considered applying for it himself. But some of Point72's history, including its predecessor's legal troubles, don't sit well with him.

"I think it dents an industry I'm kind of passionate about," he said of the SAC indictment in a telephone interview. "And then also there's another side. … I kind of like the idea of managing outside proprietary capital. I feel like wealth creation for people other than Steve Cohen is valuable to society."

Still, "I feel like I'm in the minority on that view," Turek added. Among the other students he talked to after the campus event, "it didn't seem to bother them."