Single-Family Offices Are Hiring Hedge Fund And Private Equity Investment Talent
By Russ Alan Prince
A driving trend in the world of single-family offices is that they are becoming increasingly professional. This takes a number of forms from incorporating behavioral best practices to creating highly motivational compensation arrangements for senior management. Another aspect of this drive to upgrading single-family offices is hiring experiences, proven investment talent. This is even more the case when it comes to investment professionals with hedge fund and private equity backgrounds.
According to Angelo Robles, founder and CEO of the Family Office Association, “We’re seeing family offices really raising the bar when it comes to the quality of investment professionals they’re hiring. What’s even more telling is that some really experienced and exceptional hedge funds managers and private equity fund managers are joining family offices.”
There are many attraction of single-family offices to these proven investment professionals. One appeal of single-family offices is that the super-rich family is usually willing to adopt a long-term investment horizon. It is often not about how the portfolio performs on a quarterly basis.
Another reason for high-caliber investment professionals making the move to single-family offices is that they are increasingly adopting participatory compensation arrangements. A growing number of single-family offices are willing to pay talented investors a “piece of the action.” This is usually based on the investment portfolio they are running. “In our compensation studies, what we’ve found very interesting about the participatory compensation model is that while some investment professionals can earn many millions of dollars in a year others can earn nothing at all in a year,” says Usha Bhate, Executive Director Institutional Investor. “The participatory compensation model usually has a number of failsafe mechanisms built in. For example, payouts while guaranteed tend to be stretched over a number of years ensuring the investment professionals are not taking undue risks.”
The super-rich are employing a variety of methods for sourcing potential investment professional hires. Networking and executive search professionals are common. As is raiding hedge funds and private equity funds. What is becoming more the norm is for the more sophisticated single-family offices to be very proactive. In effect, the super-rich or senior executives at the single-family office are identifying potential candidates and approaching them about coming on board. Such an approach is becoming more common not only with respect to investment professionals but with tax professionals as well.
What is clear is that the super-rich are willing to hire and pay gifted and motivated executive professionals to manage money at their single-family offices. Presently, many of these exceptionally wealthy families are looking to hedge funds and private equity funds as sources for high-caliber investment talent.