Citadel, SAC Capital Get Pick of Casualties as Carnage Worsens
By Katherine Burton
Sept. 2 (Bloomberg) -- Balyasny Asset Management LP recruited more than 30 money managers and analysts from competing hedge funds in the first eight months of the year, exceeding its total for all of 2007.
``We have been aggressively looking for talent, and in a year like this, there are a lot more candidates out there,'' said Barry Colvin, vice chairman of the Chicago-based firm, which oversees $2.5 billion. Hires came from New York-based Satellite Asset Management LP and Magnetar Capital LLC in Chicago, which have both lost money this year.
While more than 200 hedge funds shut down this year, Balyasny, SAC Capital Advisors LLC and Citadel Investment Group LLC are taking advantage of the industry's worst performance in a decade to go on a hiring spree. Hedge funds, diminished by a scarcity of credit and enfeebled stock markets, fell by an average 4.7 percent as of Aug. 28, according to data compiled by Hedge Fund Research Inc. in Chicago.
61% of the 2,795 funds managing more than $100 million that are in New York-based HedgeFund.net's database are losing money in 2008.
Most managers have what are known as high-water marks that prevent them from collecting performance fees, usually 20 percent of investment profits, until they recoup declines from peak fund values. That leaves a shrinking base of management fees, typically 2 percent of assets, to pay employees.
Firms collecting the most fees have the flexibility to select from the best people who are out of work or searching for a more secure job, recruiters and fund managers said.
Disappearing Fees
SAC Capital, the $16 billion firm run by Steven Cohen, has hired 25 equity-investment teams since November. Ken Griffin's $20 billion Citadel Investment Group has brought on at least 20 new employees from both hedge funds and investment banks. D.E. Shaw & Co., the $39 billion New York-based firm founded by David Shaw, increased its investment staff by more than 15 percent in the first seven months of this year.
``A year ago, it was much more difficult to initiate a dialogue with a candidate,'' said Deborah Markus, executive director at Gerson Group, a New York-based search firm and consultant. ``Now everyone is willing to have a conversation.''
Hedge funds that started losing money last year have even more ground to make up before they get paid. RAB Special Situations Fund, run by London-based RAB Capital PLC, has tumbled 33 percent this year and is down 40 percent since last July. Lansdowne Macro Fund Ltd., also based in the British capital, has tumbled 11 percent since November, including a decline of 6.7 percent this year.
Role of Consolidation
Balyasny's Atlas Global Investments Fund has climbed 7.4 percent this year through Aug. 20, according to investors. The firm, founded in December 2001 by Dmitry Balyasny, trades everything from stocks to distressed real estate and has attracted analysts and less-experienced money managers in part by offering them the opportunity to oversee their own trades.
As the $1.9 trillion hedge-fund industry continues to consolidate, the better-performing and larger firms are doing much of the hiring, said Keith Mann, managing director at Dynamics Associates Inc., a New York executive-search firm. The 100 biggest hedge-fund companies managed 74 percent of assets at the end of 2007, up from 69 percent a year earlier, according to data compiled by Alpha magazine.
``Hedge funds need personnel to put money to work, so they have to hire,'' he said.
Some managers are jumping to firms such as SAC and Citadel because they provide better technology, trading and access to investors.
Citadel Spree
David Fiszel closed his $200 million Rhombus Capital Management LP in New York, which traded media and telecommunications stocks, at the beginning of the year to join Stamford, Connecticut-based SAC, in part because it allowed him to manage more money without having to spend time attracting more investors. Charles Simonian of Exton Capital Management LLC and Jos Shaver of Electron Capital Management LLC, both in New York, also shuttered their businesses and moved to SAC.
Chicago-based Citadel added employees to increase its investing in Asia and Europe and to start a macro fund, which chases broad trends by trading stocks, bonds, currencies and commodities.
Citadel said in August it had brought on eight people from Modal Capital Partners, a hedge fund run by Zurich-based Credit Suisse Group AG. They included Tim Johnston in London, Julia Tsai and Kevin Kwong in Hong Kong, and Ken Moriyama in Tokyo. The firm hired Modal co-founder Nick Taylor earlier this year. In March, it recruited Kaveh Alamouti from Louis Bacon's Moore Capital Management LLC to run its macro fund.
Adding New Strategies
Much of the hiring this year has been at hedge funds looking to get into new areas such as distressed or macro investing, said Gary Goldstein, chairman of the New York-based financial recruiters Whitney Group.
``Money managers are looking for the best investment opportunities and they aren't always in strategies they are currently employing,'' he said.
Duff Capital Advisors LP, a Greenwich, Connecticut-based firm founded this year by former Morgan Stanley executive Phil Duff, added Vedula Murti from Citigroup Inc.'s Tribeca Global Management LLC to invest in shares of utility companies. Morid Kamshad joined from Pequot Capital Management Inc. to trade bank, mortgage and credit-card stocks. Both were new areas of investment for Duff.
A firm's ability to keep talented investment staff in turbulent times is crucial to its long-term survival, investors said. Some funds have changed their fee structures to ensure they have income coming in even if their fund is losing money.
John Armitage, who runs London-based Egerton Capital Ltd., got approval in 2005 from clients to charge half his usual performance fee when the fund falls from its peak. He doesn't collect the whole amount until he's recovered twice the loss.
``Firms that have a well-thought-out compensation structure will likely be the survivors,'' said Ed Vasser, chief investment officer of Wolf Asset Management in Santa Fe, New Mexico, which farms out money to hedge funds. |
