Banks and traditional fund managers should be beginning to worry about the state of their back offices. The massive build-up of a backlog of CDS settlements after unexpectedly rapid market growth, and the resultant systemic risk, has highlighted the importance of investing in back-office operations – an area all too frequently deemed second in rank to the front-office moneymakers. Although front-office staff are incentivized, those in back-office administration, compliance and accounting in large banks and asset managers are often paid relatively low salaries and suffer from lack of training and poor career prospects.
As a result, it is unsurprising to hear that senior back-office executives at banks and fund managers are now joining the exodus of bankers to join hedge funds.
Hedge funds need to prove to investors that their risk controls are top-notch; if this means poaching experienced staff from underpaid roles in banks and money managers, so be it.
According to some recruiters, hedge funds pay between 25% and 50% more for experienced operational staff than banks do. In addition, hedge funds tend to offer the staff direct ownership benefits or a share in performance fees. Aside from monetary benefits, those that have made the move claim that hedge funds offer a better working environment for the sort of people who want to feel involved in what a company is doing.