Equity Shops Run Gamut From Lean to Robust

Some of the largest equity-fund managers employ as few as 2-3 staffers for every $1 billion of assets under management, while others maintain staffing levels 10 times higher.

At the lean end of the spectrum is Adage Capital, which has $24.5 billion of regulatory assets — a figure that includes leverage. The Boston firm has a staff of 45, for a ratio of 1.8 employees for every $1 billion of gross assets. At the other end is SAC Capital, which disclosed $43.8 billion of gross assets in its most recent regulatory filing and a staff of 900 — for a ratio of 20.5 employees per $1 billion.

An analysis of SEC-registered hedge fund firms shows a wide disparity in staffing levels among the biggest equity managers (see list on Page 7). The analysis is based on disclosures by long/short equity managers among the 200 largest fund operators in Hedge Fund Alert’s Manager Database, ranked by regulatory assets. The analysis

focuses on equity managers because of their prominence in the industry and the rough similarity of their businesses.

Still, industry professionals cautioned against drawing conclusions about a manager’s business based on its staff-asset ratio. Assets under management is one of many factors dictating the size of a firm’s staff, noted Chris Throop, head of business consulting in Bank of America’s prime-brokerage unit. In many cases, the exact nature of a firm’s strategy and the number of vehicles it manages are more important considerations than asset size.

Take Adage and SAC. Adage’s business encompasses a single hedge fund, and the firm manages no separate accounts. But SAC is a sprawling investment operation with numerous vehicles and multiple operating units and trading desks at its headquarters in Stamford, Conn., and in New York, London and Hong Kong. The complexity of the business requires deep benches of operational, risk-management and compliance professionals, in addition to the investment teams.

Indeed, since the financial crisis and exposure of the Bernard Madoff fraud, institutional investors have shown a strong preference for firms with robust operations, requiring larger and larger staffs. “Investors keep telling managers, ‘Don’t just show us your alpha-generation strategy, show us your business-growth strategy,’ ” Throop said.

Hedge Fund Alert based its analysis on regulatory assets because that’s the figure managers are required to report via SEC Form ADV. Net assets might be a more meaningful measure for purposes of the analysis. Sticking with the examples of Adage and SAC, however, the disparity in ratios becomes even more pronounced when net assets are used. SAC has about $14 billion of net assets (a staff-asset ratio of 64.3), while Adage’s net assets are $16 billion (a ratio of 2.8).

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