Alternative Investments

This has without a doubt been the most active area of recruitment focus for us in recent years. By definition it represents all asset classes apart from stocks, bonds and cash, although some AI funds would include stocks in their remit (Hedge Funds for example).

For the period of 2015 to 2020 there is a predicted five fold increase in FUM within this asset class, taking it to the staggering figure of $13.6 trillion. As a result, we have decided to break this category down into the following sub sections (I imagine this time next year will see a few new categories added to this list as well):

• Private Equity/Venture Capital/Family Office
• Special Situations/Hedge Funds
• Real Assets (Infrastructure, Real Estate, Agribusiness, Renewables etc.)

Private Equity/Venture Capital/Family Office

1. How would you describe the current recruitment market? How has this impacted on compensation?

Private Equity (PE): The term “ticking over” comes to mind. Whilst nowhere near as active as say 10 years ago when the industry was being established in Australia and had very healthy support from the local institutional market, it hasn’t wound down completely. Some funds have decided not to raise additional capital and are basically in trading down mode and shedding staff (albeit in a gradual manner) on to the market. However, there are a number of new local managers and offshore firms beefing up their capability to more than compensate for those downsizing. Compensation on the whole has remained flat (albeit healthy when compared to other Asset classes) as a result.

Venture Capital (VC): Has certainly been the most written and talked about of late – and with justification as it basically lay dormant for many years as an asset class. There is perhaps a degree of hype attached to this when one considers the amount of capital flows going into VC when compared to other AI categories such as Real Assets. So the inflows are great on a percentage basis of what had previously been allocated to the industry. However, while this has raised profiles and increased “Twitter chatter” surrounding the VC community, the number of investing roles – certainly on the rise – remain relatively few when compared to other areas of AI. Whilst a fund of perhaps $200 million is large in the scheme of things in VC, it does not take many staff to run such a fund – alternatively the management fees in such a situation are not huge, thus discouraging aggressive “staffing up “ of these managers even if they wanted to. Having said that, we have seen more VC roles in the last 12 months than in the last 5 years put together, and we imagine this trend may continue into 2018 at least. With the sector previously being dormant, there is no prior compensation track record to really comment on – what we would say is that as an AI asset class it probably pays the least of any in terms of upfront base and any annual bonus. However, there is certainly upside as far as carry or any LTI structure that might exist to reward the successful managers out there.

Family Office (FO): Tricky one this. Whilst globally the FO sector has and will continue to grow in size and importance, it has flown under the radar to a degree in Australia. This is possibly due to the Families wanting to maintain their privacy, as well as the fact that they have been channelling their assets into other AI categories (such as PE/VC/Hedge Funds) with the result that hiring partially attributable to them has been counted under these instead. We have certainly seen a healthy, albeit not huge, volume of hires within the FO area. I do feel that this year and into the future we will see more direct hires being made into these teams or a number of new Family Offices being set up. For what hiring we have seen, I would say the compensation has experienced upward pressure. FO have realised quality of staff pays dividends over quantity, and quality comes at a price – especially when they may have other options from within the AI spectrum.

2. Any client or candidate trends observed over the last 12 months?

Client side: I’d say deeper due diligence as part of any candidate selection process (a trend across the board but especially prevalent in the AI field). So apart from standard interviews (if there is such a thing?) we also have case studies (sometimes two), psychometric testing, any existing performance rating reviews witnessed if possible, more informal drinks/dinner meetings, multiple reference checks etc. In some cases there has been/is an attempt to redress the diversity issues that seem to be particularly prevalent amongst these firms. As the teams are often small, cultural fit is often as relevant as technical capability which may be driving this increased diligence.

Candidate side: Amongst the junior candidate pool there has probably been a small drift of interest away from PE (certainly away from large deal LBO style funds) and toward VC or its sister area Fintech. At the senior end it would be fair to say that career outcomes have been more of case by case basis: some leaving existing funds to move into personal (establishing their own smaller fund) or club investing activity on a deal by deal basis, some moving to super fund/Private Capital teams.

3. Predictions:

We anticipate steady hiring through 2018 broadly in line with 2017, with the junior entry level positions representing the lion’s share of the market. However, there will be mid/senior hires – either in funds as replacement of staff who have moved on (succession mismanaged; desire for a career move; those leaving to set up their own fund), or where new funds are raised or enter the market from offshore.

4. Any interesting case studies?

2016/17 saw the creation of a couple of new domestic managers. For each of these there was no shortage of talent at the Investment Director/Investment Manager or Analyst levels for them to consider, with a healthy candidate pool being generated from PE (local or offshore candidates returning) and from the investment banking or consulting community for the junior roles.

One thing we did struggle with in 2017 (and in prior years) was sourcing quality experienced investing talent based in Melbourne. Clients generally had to consider interstate candidates willing to relocate or commute, or in at least one case even settle for having the placement based in Sydney (a less than ideal outcome in their eyes).

Special Situations/Hedge Funds

1. How would you describe the current recruitment market? How has this impacted on compensation?

Probably fair to say it’s a bit of a mixed bag. Whilst international hedge funds have struggled to outperform the market globally (too many, less favourable market conditions) some Aussie managers have performed well which has brought the spotlight on to them from both international and domestic investors. However, reflecting what has happened offshore, the domestic managers have also experienced a mixed bag as far as performance. Some have done well and now sit high up on the global return ladder, whilst others have failed to deliver returns.

Not surprisingly, this has then been mirrored in the recruitment market with some select hiring at some funds and some downsizing elsewhere. Generally, compensation in this area is geared toward performance. So base numbers tend to remain flat and relatively low when compared to other AI classes, but total compensation can be exceptional if the performance is there.

2. Any client or candidate trends observed over the last 12 months?

Client side: As with PE, though on a smaller scale, we’ve seen some managers close their doors or have significant decline in FUM numbers, while others have had existing and new clients beating down their doors to get access to their funds. Client responses to this differ – with some declaring the fund closed, wishing not to take on additional capital and instead looking to focus on maintaining performance, where others have been happy to open their doors to the potential inflows available.

Candidate side: Special situations (as opposed to hedge funds) has been proving to be a popular area of interest for candidates. Those with some prior investing experience from areas such as PE in particular seem to be keen to move into this field. This is due to these managers usually having a broader mandate than PE as far as where they can invest (geographic, sector, type of capital: debt/mezz/equity, distressed etc.).

3. Predictions:

We envisage we will see select hiring in this area over the year, probably in line with past years.

4. Any interesting case studies?

One international manager set up an office by hiring a team effectively out of a domestic player, although it was a staggered build out.

Real Assets (Infrastructure, Real Estate, Agribusiness, Renewables etc.)

1. How would you describe the current recruitment market? How has this impacted on compensation?

The large amounts of capital looking for a home in these asset classes have maintained a very active recruitment market. There is plenty of demand for staff, particularly at the junior and mid levels.

2. Any client or candidate trends observed over the last 12 months?

Although buoyant, I’d refer to the percentage growth in headcount in these asset classes as steadily increasing. For investors yield is still very high on the list. On the unlisted side of infrastructure/real estate – the yield compression hasn’t been as noticeable as on the listed side so there is a constant flow of capital looking for a home within large scale unlisted infrastructure and commercial real estate (i.e. the smartest minds at AustralianSuper, IFM etc. are happy to fork out for $5 billion + assets again and again at prices everyone is saying are way too expensive).

Superannuation funds are increasingly happy to get closer to market rate for their internal investment staff, which has meant that they are able to in certain situations attract candidates whom may otherwise have gone to large name funds. This may further again reduce the ability of funds to gain discretionary mandates from superannuation funds.

3. Predictions:

There will be continuous growth in headcount, with one of the more active areas being renewables.

4. Any interesting case studies?

After a few years of not a lot of senior level movement, there has been an increased outflow of senior level investment staff almost exclusively based on redundancies rather than poaching between the funds. Most of those people have been unable to move into similar roles at other funds, which in turn has created career development opportunities in the mid level ranks.

Contact
Jon Michel
02 9235 9410

Ali Roger
02 9235 9450

Mischa Bennett
02 9235 9430