Quantitative and passive managers and support staff, once considered the geeky and boring strata of the money management world, are suddenly its darlings, the objects of intense talent raids that reputedly can lead to salaries of more than $3 million a year.
What started in July with the raid of a 12-person team from Bankers Trust Co. - now Deutsche Asset Management in the Americas, New York - by a start-up index operation of Merrill Lynch & Co., Plainsboro, N.J., has escalated into an all-out bidding war in passive and quant management.
Deutsche, for example, had to act quickly to restaff. It has been making major assaults on the staffs of its main competitors - State Street Global Advisors, Boston, and Barclays Global Investors, San Francisco.
Just last week, Deutsche successfully wooed two BGI staffers: Janet Campagna and Jim Creighton.
Ms. Campagna, in charge of implementation of asset allocation strategies at BGI, was hired as managing director and head of global tactical asset allocation. Mr. Creighton will head global index management at Deutsche, replacing Kathy Condon, a Bankers Trust veteran who is leaving.
Deutsche's snatch-and-run game quickly turned into hardball: SSgA is suing Dean S. Barr, Joshua Feuerman and Richard Goldman, claiming they violated non-compete agreements by leaving SSgA for Deutsche (Pensions & Investments, Sept. 6). A decision from Judge Raymond Brassard of Suffolk Superior Court in Boston is pending.
Market observers seem bemused by the sheer size of the salary packages Deutsche offered SSgA staffers. Word on the streets of Boston, where they came from, put the three-year salaries between $9 million and $11 million for Messrs. Barr and Feurerman, possibly with signing bonuses of $3 million.
SSgA and Deutsche would not confirm salary numbers.
One industry observer termed the salary figures "highly improbable." To his knowledge, no investment professionals at SSgA currently earn more than $1 million a year.
But the rumored salaries may not be out of the ballpark, considering the court testimony by attorney David Rosenthal in SSgA's non-compete suit reporting SSgA had to match Deutsche's salary offer of $1.9 million to persuade Peter Leahy, managing director for global structured products not to leave (P&I, Sept. 6).
That such a bold raid on so many staffers could take place without SSgA management's noticing clearly amazed other managers in Boston's tightly knit investment management community. Insiders said Deutsche's headhunter, Robert Warren of Warren International Inc., New York, must have moved with extraordinary care in his recruitment efforts, as most of the city's money managers are fairly concentrated in the small financial district, where breakfast and lunch dates are frequently conducted elbow-to-elbow with other managers.
Tom Taggart, a BGI spokesman, said he could not comment on rumors that BGI has recently sweetened the salaries of several key executives to keep them from leaving.
Calls to SSgA regarding efforts to secure its quantitative and passive management staffs were not returned.
Frank about recruiting
Deutsche officials, on the other hand, were open about their aggressive recruitment and growth plans. Deutsche is moving toward a more integrated investment management approach for institutional clients and is seeking more strategic hires of "people who can make connections between asset classes, where they can add value by breaching the gaps between the silos," said Josh Weinrich, co-head of Deutsche Asset Management in the Americas.
Mr. Weinrich doesn't deny that Deutsche's recent hiring spree has shaken up the formerly staid passive management industry.
"The industry is in an environment that is not growth-oriented. Passive management is run as a mature business, focused on costs. The labor market has been so stable for so long, there's been a staleness. People who are working now twice as hard in a low-cost business environment might be willing to re-evaluate their careers and go for higher pay," Mr. Weinrich said.
Industry observers are impressed by such emphasis on both passive and quantitative management skills, but make clear distinctions between the two camps.
"I knew indexing would be big, but not this big," said money manager talent scout Ken Phillips, president of Money Management Partners LLC, Boulder, Colo.
Quantitative vs. passive
"I never thought that there would be a differentiation between indexing products and quant strategies, but even in the vanilla indexing products now, you can have some differentiation and ways to create alpha. Franchise players are going to pay up for this ability," Mr. Phillips added.
Passive management "is a volume game - hold on to what you have, maybe increase it a little, but it's not a high growth area," said Deutsche's headhunter, Robert Warren, president of Warren International.
"Quantitative management, on the other hand . . . (has) been sought for some time by investment companies that have distribution and want to build more of a manufacturing base. The real exciting new trend is in alternative investments, where quantitative skills play a big role - in arbitrage and hedge fund management, for example," Mr. Warren said.
"I'd rather be a geek than boring," said manager consultant Christopher J. Acito, director of BARRA Strategic Consulting Group, Darien, Conn., referring to the common perception of quantitative vs. passive managers.
"If I were hiring you for indexing, I would expect you to have indexing down pat - operationally, it's much more mechanized, programmed. But the quants, they're hypercurious, hyperexploratory, which is appropriate for enhanced indexers," Mr. Acito said.
Messrs. Warren and Acito both cited a nascent trend by money managers to marry quantitative skills with more fundamental, active management strategies.
Mr. Acito said leading-edge managers have begun using quant techniques to support more basic management functions in stock screening, portfolio construction and performance attribution.
Mr. Warren anticipates he will be assisting managers with many more lift-outs of quant shops, as acquisition targets are harder to come by and more difficult to pull off.
"One of the real benefits of having a strong quant shop is this enriching of fundamental research. Getting a quant team is a really great acquisition - a natural supply of talent and a culture that over time will strengthen fundamental processes," Mr. Acito said.
