A Look at L/S Equity

A Look at L/S Equity

In recent years, the hedge fund industry has witnessed a noticeable transformation. Alongside performance issues, which have impacted both single-managers and multi-managers, the asset-raising environment has proven to be particularly challenging, with many CIO-structured firms fighting off redemptions and focusing on asset retention, as opposed to sourcing new capital. Below, we have reviewed the impact that the rise of the multi-strategy funds has had on the overall talent market across equities.

Single-manager hedge funds are traditionally associated with in-depth fundamental analysis, longer-term investment strategies, and concentrated portfolios. However, there’s a growing trend among individuals and investors towards market-neutral and multi-manager approaches. This shift is driven by the challenging capital-raising environment, macroeconomic uncertainties, and the appeal of the sector diversification that multi-strategy platforms offer. Whilst new launches continue to enter the market in 2023 (such as Ilex Capital and Regents Gate Capital), senior trading talent are still less inclined to join a single-manager environment, acknowledging the benefits of continuing to associate with well-established funds and enticed by the financial security and stability these institutions offer.

In response to the vast majority of platforms adopting a pass-through model, hedge funds are revamping their strategies to attract and retain top talent outside of financial incentives. These include fostering a collaborative culture without imposing netting constraints, providing employees with ownership over specific areas to enhance market access, displaying a willingness to tolerate reasonable trading losses, offering clear spin-out optionality down the line, and, in some cases, offering global flexibility for remote work. These strategic adaptations highlight multi-strategy hedge funds’ commitment to remaining competitive and creating an environment that attracts and retains the industry’s top talent.

Hedge funds are not only prioritising the retention of their senior talent but are also investing in nurturing and developing their analysts. These firms have seen remarkable success with their talent development programs, exemplified by initiatives like Point72’s LaunchPoint program and Balyasny’s Anthem Project. These programs provide extensive training, mentorship, and a clearly defined career advancement path. As a result, senior analysts and associate portfolio managers can seamlessly transition into more autonomous roles, with a specific focus on risk management. Importantly, these efforts create promising longterm career opportunities for junior talent, especially those coming from single-manager setups where opportunities for increased responsibility in risk management may be limited. Unfortunately, due to the way single manager hedge funds are set up, these progressive career ladders are simply something they’re not able to offer, meaning their top analysts are often poached within 2 to 3 years of being there.

Despite recent hurdles in the equities market, we’ve seen a notable rise in the demand for talent throughout this year. Equity investment placements at OCR have increased by 37% compared to last year, and we anticipate more opportunities becoming available as we approach 2024.

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