Luring marketers is proving to be tough sell for managers

Hedge funds looking to hire top-notch marketers are having a tough time, especially when the focus is on institutional investors.

The pace of hedge fund marketing search activity has picked up "significantly in the last 12 months," said Marylin L. Prince, partner at Prince Goldsmith LLC, New York, a recruitment firm. "There's a lot of competition among hedge funds for top talent," she said.

Recruiter Michael Martinolich, managing director, Cromwell Partners LLC, New York, said he knows of at least six significant, high-profile marketing searches that will be initiated this year by hedge funds seeking to expand. "It's all about growth, bringing institutional marketing expertise into the hedge fund space," said Mr. Martinolich.

But hedge fund companies likely won't find it so easy to find the caliber of talented marketers they are looking for.

Recruiters reported that many hedge fund managers are having trouble selling themselves to the large pool of marketing and sales talent now working on the traditional, long-only side of the money management business. That's partly by design — or rather, the lack of it, recruiters said.

While the first wave of hedge fund marketers "just weren't very good; they were the pioneers, slogging their way," talented marketers and sales staff from traditional asset managers now do "see great opportunity in hedge funds as their next selling assignment," said recruiter Janice Abert, managing principal of Abert Associates LLC, White Plains, N.Y.

But Ms. Abert maintained that "hedge funds are looking for a proven track record of sales success bringing with them a strong Rolodex of relationships with plan sponsors and their consultants. But hedge funds just don't know how to put together a compensation package including guarantees, equity in the company and reasonable lead times for raising assets that would attract a seasoned institutional marketer. And they also don't typically offer large enough business development budgets." Ms. Abert said that has led to "not many professional offers being made. Hedge fund managers tended to hire marketers who are basically gunslingers selling whatever they can," rather than well-trained professionals.

Ms. Prince agreed that hedge fund companies view as an alien concept the kind of compensation "guarantees" that are a normal part of an institutional marketer's employment agreement. "Hedge fund managers don't like to make guarantees to their investment staff or their marketers," she said. "A lot of salespeople in traditional asset management firms are making a lot of money. It's hard for them to think about making a move to a hedge fund with the potential for significant upside compensation without at least some kind of minimum guarantee," Ms. Prince said.

Mr. Martinolich, on the other hand, said institutional marketing professionals are insisting on even longer guarantee periods, anywhere from 18 months to 24 months.

"Hedge fund managers are manufacturers. They don't understand the marketing process, that it's got to be very disciplined for institutional investors and that it takes a minimum of nine and often 18 months before assets begin to come in. Hedge fund companies have a hard time accepting this," Mr. Martinolich said.

Even casual observers of the hedge fund marketing world find plenty of reasons to be wary.

"Marketers' initial response to moving over to the hedge fund industry was very positive. All that money coming in was very attractive. But the bloom is off the rose. They've all seen too many people blow up, crash and burn," said recruiter Ashton S. McFadden, managing principal, Jamesbeck Global Partners LLC, New York.

Recruiters pointed to several high-profile moves by institutional marketers to the hedge fund space that simply fell apart.

Don Steinbrugge moved in 2002 from head of institutional marketing at Merrill Lynch Investment Managers, Princeton, N.J., to $7 billion hedge fund manager Andor Capital Management LLC, New York. Mr. Steinbrugge left less than a year later. Neither Andor nor Mr. Steinbrugge were specific about the reasons for his departure in press reports at the time.

Another person who moved from the traditional asset management world to hedge funds and left fairly quickly was Sharon Haugh. She joined $6.5 billion Pequot Capital Management Inc., Westport, Conn., as its chief executive officer in February 2003. She had been chairman of Schroder Investment Management North America, New York, after starting there as an institutional marketer. In fact, Ms. Haugh was awarded the Richard A. Lothrop award for outstanding achievement as a marketer by the Association of Investment Management Sales Executives in 2002 before she left Schroder Ms. Haugh left Pequot last month "by mutual agreement," said Jonathan Gasthalter, a Pequot spokesman. He declined to comment further on the reasons behind Ms. Haugh's departure. Art Samberg, Pequot's chairman and founder, has assumed Ms. Haugh's responsibilities and Ms. Haugh will not be replaced as CEO, said Mr. Gasthalter.

Ms. Haugh was unable to return a call placed to her home by press time seeking information about her departure and her plans.

Another big problem with seeking good marketing talent is that nearly all hedge funds and fund of funds have a finite asset-gathering period, said Mr. Martinolich. "The problem is a function of the bifurcation of the hedge fund industry. A marketer is hired to raise new assets, but what happens when there's no more room for new assets?" he said.

Mr. Martinolich said hedge fund managers are only now just beginning to understand that they need to transform talented marketers into skilled client service staff and relationship managers and pay them accordingly. But most really good marketers probably wouldn't want a client service job, anyway. "The good guys are not going to want to spend more than 50% of their time doing client service, if that," he said.

The trick is to switch marketers to a compensation deal that grants an equity stake in the company and probably part of the revenue stream, Mr. Martinolich said. "The premise is that if you, as a hedge fund company, don't know how to compensate your marketers after your doors close, you're only going to attract average marketers," especially for firms with less than $2 billion in assets under management, Mr. Martinolich said.

Mr. McFadden noted that "nobody has the model right" when it comes to compensating hedge fund marketers and suggested a better idea might be to hire a really good client service person who is "very skilled at hand-holding, but who is presentable enough to occasionally go out and market and cross-sell products to existing clients once the hedge fund manager has closed its doors."

But compensation consultant Alan Johnson, managing director, Johnson Associates Inc., New York, said hedge fund companies generally don't see the need to worry about transitioning employees from marketing to client service jobs.

"Client service is not a normal skill set for a marketer. They don't want to do that. With hedge funds, I think a marketer basically has to take the attitude that they will work there for three or four years, make a lot of money, and then go on to the next stage of their careers," Mr. Johnson said.

Despite their trepidation, recruiters pointed out a few brave institutional marketers who made the jump to hedge funds.

Highland Capital Management LP, Dallas, a $9 billion hedge fund manager, in October hired Ron Ernst as a managing director to pump up institutional marketing efforts. He had been director of institutional marketing at Vaughan, Scarborough & McCullough LP, Houston. Bernard Vanderhaar joined Mr. Ernst at Highland Capital as a managing director on the marketing side. He was a managing director at The CommonFund, Wilton, Conn., where he was responsible for marketing to non-profit organizations.

Stephen C. Cordy is another marketer who jumped from heading corporate institutional marketing for the U.S. and Canada for Morgan Stanley Asset Management, New York, in November 2002 for Arden Asset Management Inc., New York. Mr. Cordy now is a managing director of client management and development at the $4 billion hedge fund of funds.