1Q17 FUNDS SNAPSHOT

IN THIS ISSUE

1 Overview: Industry Trends

OG Recruiter Interview: Graham Smith, Brian Palabrica, Amit Kapoor 2

OG Client Commentary: Hedge Fund Breakfast Highlights 3 4 People Moves

1. OVERVIEW Regulatory and compliance issues are Another pressing issue, particularly The first quarter of 2017 has seen a adding costs and creating hurdles for given the importance of quant talent strengthening of the dominant trend fundraising. Trade crowding is a for hedge funds, is immigration of 2016: quantitative investing. Quant growing problem that ironically has policy. In April, President Trump strategies are enjoying growth in been intensified by the growing signed an order directing American absolute and relative terms, as well reliance on quant strategies and low- agencies to propose new rules and as outperforming traditional, latency trading. Cybersecurity protocols for the H-1B visa program. fundamental strategies. As a result, constitutes yet another issue facing The President's goal is to ensure that hedge funds are heavily investing in hedge funds, forcing them into the current lottery system is replaced quantitative talent and technology to unending races against the ever- by one that favors the most highly boost risk management, portfolio evolving cyber-threats plaguing the skilled or most highly paid applicants; construction, and data science financial community at large. and further, the President is adamant operations. Candidates in the that anyone receiving such a visa quantitative space at all levels are The single greatest challenge facing must not be displacing an American seeing an increase in opportunity at hedge funds, however, is the political worker. While it is more likely that hedge funds and ancillary businesses. environment. The Brexit vote and technology outplacement workers Hedge funds are growing in-house Trump's win in the American will be more affected than financial teams or engaging with boutique presidential elections are bellwethers specialists, the lack of clarity about subscription services to develop of populist sentiment growing in both immigration rules is another obstacle quant strategies and capabilities. the United States and Europe; that hedge funds navigate. feelings are running strongly against While many hedge funds running open markets and financial It is ironic, then, that the current fundamental strategies have been powerhouses. The Trump uncertainty has favored the largest playing catch-up with their administration has presented an funds even though a number of them quantitative peers, there have been array of different and sometimes have had disappointing performance. bright spots for some strategies. One contradictory initiatives. While the These funds have both the resources macro systematic fund was up almost Cabinet is full of Wall Street bankers, to withstand weak performance and 25% on the year through November. primarily alumni, the redemptions; and they are widely Distressed credit or global credit administration's withdrawal from the seen as safe havens. On the other long/ also have performed well. Trans-Pacific Partnership agreement hand, smaller funds have suffered Portfolio managers are returning to and its expressed desire to rewrite badly, not only because of difficult merger and event-driven NAFTA are hardly friendly to financial market conditions but for a number investing with notable success. A markets in general and to hedge of other reasons as well. For example, number of issues are generating funds in particular. banks, under pressure to allocate headwinds for hedge funds.

1Q17 HEDGE FUNDS SNAPSHOT

Brian Palabrica is a Director based in New York, where he focuses on recruiting for our alternative investment clients. He focuses mainly on hedge funds, with an asset class specialty within Equities and Equity Derivatives. He has placed professionals across Trading, Research, Portfolio Management, Risk Management as well as quantitative investment and research.

Amit Kapoor is a Director based in New York. His expertise is with senior management and senior investment professionals within Equities across Long-Short, Value Based Investing, capital conservatively, have turned United Kingdom, the possibility of , Event Driven, and away all but the most profitable currency and trade wars, American Family Offices. He also has a strong hedge fund clients from their prime immigration rules and tax reform, the knowledge base across Macro, Credit, brokerage businesses. The figures on refinancing of Greece's debt, Russia's Quantitative, and Commodity launches and closures tells the story; increasing belligerence toward both strategies. in 2016, 566 hedge funds closed while Europe and the United States, only 518 launched. tensions with North Korea: these and Q: How is OG positioned to address other factors will also deeply cross-border talent movement? New funds are also facing pressure to influence hedge fund performance in Brian: The political climate has made lower their fees from the traditional the coming quarter. 2/20 model. A survey late last year by it desirable to work with firms that Prequin found that new funds were can easily relocate people. That 2. OG RECRUITER INTERVIEW charging 1.5% management fees and favors a firm like ours. We have Three of Options Group’s top hedge 19% performance fees. A survey offices all over the world and an fund recruiters sat down to discuss released in February by HFM and information-sharing culture. If there’s international talent movement, the Citco Fund Services found that 72% of an appetite for it, we can move 1,000 impact of perception, and our unique polled managers were introducing people from the US to Asia. positioning in the hedge fund new fee structures to attract recruiting space. Graham: Yes. For example, we have a investors. In the United States, the Graham Smith is a Partner based in hedge fund client in Asia looking to figure was even higher, at 78%. Even London, and looks after our European hire a US rates trader to move to established funds have cut fees, and Asian hedge fund practice. He either London or Asia. We've got including Moore Capital works across all hedge fund strategies some candidates in London, and we’ll Management, Tricadia Capital, and including Equity Long/Short, Equity have someone in New York, like Amit, Valinor Management. Event Driven, Fixed Income Macro, working on finding candidates from Going into the second quarter, we Relative Value, , there. There isn’t another search firm anticipate that the appetite for Systematic and Stat Arbitrage, Credit, that can do that as well as we can. quantitative talent will only grow. Distressed and Special Situations. He We know the market; we have offices However, we also believe that there has successfully placed individuals all over the world, we can execute on will be hiring for select fundamental across Asia, Europe and the US. this swiftly and efficiently. strategies. The June election in the

1Q17 HEDGE FUNDS SNAPSHOT

Brian: Cross-border talent movement possibility of rolling back Dodd-Frank looking to enter the industry. It’ll also is Options Group’s strong suit. A US- – to what degree could that happen? complicate the process by adding only recruiting firm won’t be able to Consumers like the protection, so time. It wouldn’t have a positive respond to a situation where you we’ll have to see if there’s any impact on the industry. need to move talent. It’s easy for us movement there and if there’ll be an with our experience and worldwide impact on hedge funds. Brian: There’s no arguing against the reach. When macro forces are fact that there is not enough US- affecting how and where people are Brian: The more interesting based or US-born talent to support being hired, we’re best positioned to regulatory and compliance issue are hedge fund demand. A reduction in help. those associated with retail strategies foreign-born talent would be and long-only offerings. For example, damaging. Broadly speaking, political Q: Speaking of macro forces, how there's a hedge fund building out its bans that potentially demonstrate a does the changing regulatory long-only fund, which requires negative posture towards the world environment in Europe and the US building out a whole class of people may impact if and how people decide affect the hedge fund industry? that know about that kind of thing, to move. whether it’s individuals that know Amit: Well, regulatory compliance is how to market that kind of structure Graham: And in the UK, Brexit has led obviously a point of concern for the or build that business. Hedge funds to a similar perception. If the UK is hedge fund industry. are blurring the line between what perceived as unwelcoming to foreign was previously only available to individuals, it can be really harmful, Graham: Right, in terms of European secretive, high net worth investors. regardless of whether it’s true or not. regulatory issues, the Markets in Now, the door is opening to more Financial Instruments Directive Brian: For hedge funds, Asian and people, like mom-and-pop investors. (MiFID II) will change the relationship Russian talent is essential; they make This creates new concerns and new between hedge funds and research. It up a majority of the quant talent hiring appetite. One fund I work with basically has to do with how banks pool. So if the majority of hedge fund is looking to build an ETF and needs a are separating their research arms. hiring is going to be in the quant marketer to push the process. The Banks can no longer provide free space, then this would have an demand is there, but hedge funds research. Hedge funds will have to impact. now need to deal with regulatory and pay for research from the banks. I compliance concerns. think good research will be paid for, Q: Can you speak to quant hiring as a point of focus for hedge funds? but the vast majority of research will Q: What about the potential impacts not be bought. This is still an ongoing if the H1B program were changed? Graham: The quant side is very busy. process, so we’ll see what happens. Their funds are generally cheaper and Graham: In Europe and Asia, there performing well. Of course, if they Amit: I’m sure there will be an impact are candidates who wanted to move perform poorly, people will question on how US-based hedge funds use to the US, but now they’re thinking, the strategy. research. “Oh, I won’t go, I’m not sure I’ll get a visa.” But I’m not sure this is affecting Graham: It could be positive. Hedge Amit: What we’re starting to see is the hedge fund industry, yet. There’s fund managers are looking for good that there is a lot of trade counting a lot of talent moving around, so research and indicators of good especially with momentum-based there are many people that we’re still research. This might make it easier to trading. People are saying, “Okay, able to place. determine what’s worthwhile. where’s the in the market?” "Quantamental" analysts and data Amit: It could hurt the group that’s Amit: We also have to keep an eye on scientists are starting to see this as looking to access the expedited the current US administration and the next wave. The momentum process. The impact will be on regulatory changes. For example, the environment is overcrowded, and younger people, and students,

1Q17 HEDGE FUNDS SNAPSHOT

people are saying, “I don’t know Ultimately, the people with the best internal spending on research, funds where to find my alpha.” data sets will win. This is basically the are heading to third-party providers. way it was before, except that it was Graham: There’s also this concept of based on human-driven This interview has been edited for clarity and finite talent. Essentially, the top length. The information presented here is interpretation and data gathering. speculative, and is based on our recruiters’ quants are already at the top hedge is great and it's experiences and opinions. If you’re interested in funds. So the next tier, which aren't additive, but it’s not altogether reaching out to our recruiters, you may contact them at: as good, are being hired across the different from how money was made hedge fund landscape. The idea goes, in the past. The human element will Graham Smith one of these lower-performing always be a part of it. [email protected] individuals will eventually write a +44 (0)20 7448 0146 code that goes awry, and the media Graham: I saw a client two weeks ago Brian Palabrica will pounce on the blow-up that that buys data from the New York [email protected] follows. People will see it in the news Stock Exchange. As a quant fund, they (646) 871 1390 and decide it’s time to go back to use the data to build a model. The human-run value strategies. I’m not current legal agreement when you Amit Kapoor sure I share that opinion, but that’s a buy data like that is any future model [email protected] (212) 982 8902 theory that’s being shared by people you build using that data is in the industry. proprietary. So if you stop paying a monthly fee to the NYSE, you have to 3. OG CLIENT COMMENTARY Brian: But that doesn’t account for stop using that model. Now this fund Earlier this year, Options Group the new talent that’s entering the is trying to fight that because it’s sort hosted People Science, an market. New top performers of nonsensical. But the NYSE is informative conference on the use of graduate each year. resistant, because you can imagine if data analytics and people science in the fund makes $10 million off the hiring practices. Richard Stein, OG's Graham: There was an interesting algorithm, the NYSE wants a piece of Chief Growth Officer and Head of article in OGAxess, our news that. They realize they can make a OGiQ at Options Group, led the platform, about Quantopian. They’ve few millions by selling data and conversation between Evan Anger, had 100,000 models submitted to keeping the proprietary rights. Senior Vice President in Recruiting at them, and there are 25 that they are Two Sigma Investments; Russell actually running. They said that the Brian: The quant space will keep Farhang, Head of Talent and Culture vast majority are useless. However, growing. It’s an arms race. People at PDT Partners; and Glen Vilim, it’s an interesting concept. know or feel that they have to be President of GV Trusted Partners. involved in this space; they feel that Brian: Quant hires will continue to be they have to be involved with data The panel focused on talent a point of focus for hedge funds science. Of course, a major event attraction and selection, engagement, unless there’s another flash crash- would slow this growth. Or there and measurement. They discussed fit- type event. The interesting concept could be a gradual slowing. Small to-role, fit-to-culture, and fit-to- here is that data science is just more funds might realize they can’t afford lifestyle, along with other factors that information, but everyone is chasing the necessary research and that are shaping the talent market. The the same information. Basically, they’re not making returns, so they’ll panelists shared their insight on there’s this class of people who are leave the space. Otherwise, I can’t identification and retention processes just traveling the world to secure envision a slow-down. that are changing the way hedge specific data agreements with data funds hire. providers, ideally on an exclusive Amit: Right, but for now a lot of third- basis so competitors don’t have party research groups are popping-up The key themes from January’s access. as a result of this. So instead of discussion included data imperfection, data collection,

1Q17 HEDGE FUNDS SNAPSHOT

unquantifiable characteristics, creative incentives, culture-building, and blind spots in data analytics. Evan, Russell, and Glen suggested approaches to current challenges, and potential problems that may arise as the talent market continues to change. Through a lively discussion, they agree that data analytics and people science are becoming critical tools in building the right team and predicting business performance.

4. PEOPLE MOVES Person Title Current Firm Previous Firm Akiyama, Yuki Portfolio Manager Millennium Management Nezu Asia Capital Allende, Andres Portfolio Manager Cobas Asset Management Standard Life Investments Ashoka, Vikram Associate, Healthcare Aptigon Capital Morgan Stanley Barden, John Portfolio Manager Cobas Asset Management Matrix Alternative Asset Management Berkley, Michael Portfolio Manager Aptigon Capital Tiger Consumer Management Berman, Andrew (Andy) Head, Credit Graticule Asset Management Fortress Investment Group Cipollini, Alessandro Portfolio Manager Hutchin Hill Markham Rae Fitzpatrick, Dawn CIO Soros Fund Management UBS O'Connor Galam, Elie CIO Eastmore Group BlueCrest Capital Giardina, Scott Head, Event Driven Trading DW Partners Magnetar Capital Goekjian, Christopher Portfolio Manager Blue Glen Investment Partners Cheyne Capital Goldthorpe, Ted J. Managing Partner BC Partners Apollo Management Hamontree, Bryan Credit Analyst HBK Investments Taconic Capital Advisors Irion, Eric Head of Distressed Trading Anchorage Capital Group Arrowgrass Capital Lewinsohn, Jonathan Founder Diameter Capital Partners Centerbridge Partners Maldutis, Alexander (Lex) Portfolio Manager Napier Park Global Capital Bank of America Lynch Molinari, Gioel President Butterfly Network Bridgewater Associates Murti, Vedula Portfolio Manager BlueCrest Capital Management Caisse Des Dépots Securities Ning, Michael Zhu CIO PhaseCapital First Eagle Funds Parekh, Neel Portfolio Manager Aptigon Capital Tiger Consumer Management Rahemtulla, Nav Co-Founder LightBay Capital Ares Management Santoro, Peter Global Head of Equities Millennium Management Morgan Stanley Schwarting, Carsten Portfolio Manager BlueCrest Capital Management Goldman Sachs Senhaji, Amine Metals Trader Millennium Management BNP Paribas Taylor, George Founder Madava Asset Management Taylor Wood Capital Troup, Anna Head of UK Legal & General BlueBay Asset Management Tse, Anthony W. Head of Global Equities CrimsoNox Capital Visium Asset Management Valerio, Chad Portfolio Manager Oak Hill Advisors BlueMountain Capital Vyas, Amit Research Analyst Diameter Capital Anandar Capital Williamson, Jim Associate - Credit HBK Investments Davidson Kempner Partners Yip, Dominic Portfolio Manager Dymon Asia Capital Credit Suisse

1Q17 HEDGE FUNDS SNAPSHOT

DISCLAIMER: This document is published solely for informational purposes. OG is not responsible for the accuracy, completeness or reliability of the information contained in this document. The Information is not intended to be a complete statement or summary of the industry or developments referred to in the document. Any opinions expressed in this document may change without notice. No actions should be taken solely in reliance of the material or opinions. The analysis contained in this document is based on numerous assumptions. Different assumptions could result in materially different results.

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