By Hedge Fund Insight staff
Citi Prime Finance has commissioned research titled “Exploring the Concept and Characteristics of People Alpha” – the result of having surveyed 24 large and medium-sized hedge fund management groups on staffing processes and policies. Today’s Graphic of the Day reflects a suggestion that staff management will become the third leg of due diligence by investors in hedge funds.
There is real strength and weakness in the concept shown above. The weakness is that in making a neat graphic there is too much weight given to the top two elements in selection by investors in hedge funds (in column three). The elements are stacked in reverse order of significance: investment insight, returns and processes are the dominant factors in selection, and operational due diligence is a necessary hygiene level factor but will never drive positive selection. However, there is real strength in the concept of People Alpha, and if the illustration could be animated, it would show an increasing significance of this third element through time, even if it should be proportionally smaller now.
Citi’s thought leadership paper is correct in reflecting that that the way hedge funds recruit, retain and develop staff will be an increasing focus of investors in hedge funds. But more significantly it has to be focus of the management of the medium to large hedge fund management companies. Hedge fund companies are now often expected to survive the retirement of their founders, and in order to secure appropriate exit routes (listing, sharing equity, and M&A) human resource management has to be taken very seriously.
The research identifies four pillars of People Alpha: Talent Acquisition, Talent Retention (The Focus on Culture), Learning & Development, and Performance Management (Measuring a Performing Organization). The Citi paper gives standard practice and best practice for each pillar, effectively giving an HR route map for hedge fund management company development in moving from a $500m AUM entity to a $5bn-plus sized firm.
The Citi Prime Finance paper is recommended and can be found at http://icg.citi.com/icg/sa/flip_book/a1/People_Alpha/