Hedge fund managers seeking chief compliance officers face one of the worst labor shortages in the history of the asset management industry, recruiters say.
New regulations require that most hedge fund managers register with the Securities and Exchange Commission and appoint chief compliance officers by February 2006.
The problem is a dearth of qualified candidates with direct experience with hedge fund compliance. That supply gap is driving salaries for senior compliance staff at hedge fund companies sky high. One recruiter estimated that salaries for senior compliance staff have swelled 50% in the last 12 months and will continue to rise.
Another wrinkle: Chief compliance officers will be held personally liable by the SEC. As a result, said Kathleen Dunn, managing partner of recruiter Dunn Associates Inc., San Francisco, "people don't want to take the title, the top job. They might accept being a co-CCO or a compliance team member, but they aren't readily accepting CCO jobs. Or if they are considering it, they are demanding to be paid very, very well for taking the risk. There's a sense of ‘OK, what are you willing to pay me to do this? $50,000 more on my base (salary)? $100,000 more on the base?'"
A simple calculation based on figures provided by Paul F. Roye, director of the SEC's division of investment management, illustrates the magnitude of the labor shortage. At a Securities Industry Association meeting in December, Mr. Roye noted that between 40% and 50% of the industry's approximately 8,500 hedge funds are already registered. That leaves as many as 5,100 hedge funds in need of a CCO.
Making matters worse, Arthur J. Lev, partner and general counsel at hedge fund manager FrontPoint Partners LLC, Greenwich, Conn., and others at the SIA conference suggested hedge fund companies appoint CCOs for each strategy managed, because of the complexity of most hedge fund investment processes.
On top of all that, sources said hedge fund startups are expected to grow between 8% and 13% in the next few years. "They all will need CCOs and have to find them before 2006," said David Claypoole, partner at recruiter Parks Legal Placement LLC, Summit, N.J.
Mr. Claypoole said compliance recruitment started to pick up about 18 months ago, when the SEC held its summer hedge fund round tables, but it has reached a fevered pitch as hedge fund managers scramble to prepare for the 2006 deadline. Both generalist and compliance specialist recruiters, like Mr. Claypoole, report a big surge in search activity already this year, with even more activity expected in the next six to 12 months.
"Two or three years ago, I was chasing business. Now it's chasing me," said Mr. Claypoole.