This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

Citi Identifies “People Alpha” As Key Practice For Maturing Hedge Fund Industry

Hedge funds that invest in people management register higher average investment returns than their peers, according to a new survey from Citi (NYSE:C) Prime Finance. This concept of “people alpha” is the latest potential differentiator for managers in an industry that is becoming increasingly competitive and institutionalized.

The survey corroborates numerous other academic studies that have shown the connection between superior performance and an investment in an organization’s people.

“Just as hedge funds once claimed ‘operational alpha’ as a differentiator, we believe that ‘people alpha’ will separate some firms from the pack and will soon become an industry norm,” said Sandy Kaul, Global Head of Business Advisory Services at Citi Prime Finance.

To conduct the study Citi interviewed a diverse group of 24 hedge funds, each with at least $500 million in assets under management, and evaluated each firm’s practices by focusing on four key pillars – Talent Acquisition, Talent Retention, Learning & Development and Performance Management. For each of these categories, Citi developed a list of standard and market leading criteria and ranked firms using a 10 point scale, cumulating in a single ‘people score.’

According to the survey, the number of people working at the firm is the determining factor in their focus on people-related matters. Larger firms (+150 people) consistently outscored and outperformed medium and smaller sized firms. When there were similar sized firms such as those between 50 and 150 employees, those that fell in the bottom half of the study’s people score underperformed similarly sized firms in the top half by nearly 600 basis points between 2009 and 2012.

Other key findings:

  • The greatest difference between top and bottom performing firms was in their approach to talent retention. This included developing an interactive culture and offering an extended benefits package, flexible workplace arrangements and workplace perks.
  • Firms that scored well in talent retention also tended to have stronger approaches towards talent acquisition. These firms used techniques such as implementing internship programs and actively recruiting a diverse workforce.
  • Firms that displayed strong growth also emphasized learning and development. This included leadership training, formal mentorship programs and ongoing coaching for the management and investment teams.
  • Another indicator of current and future success is the presence of a robust review process that includes peer reviews, separate performance and compensation discussions and the inclusion of qualitative as well as quantitative factors.

“As the industry continues to mature, sophisticated investors will assess hedge funds’ adherence to people management as a standard part of industry due diligence,” added Kaul.

Stock quotes in this article: C 

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
DOW 16,408.54 -16.31 -0.10%
S&P 500 1,864.85 +2.54 0.14%
NASDAQ 4,095.5160 +9.2910 0.23%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs