Billionaire investor Dmitry Balyasny said hedge fund firms need to both buy and build talent as they expand, even amid soaring costs for traders.
(Bloomberg) — Billionaire investor Dmitry Balyasny said hedge fund firms need to both buy and build talent as they expand, even amid soaring costs for traders.
Developing internal talent is critical, but it’s not enough for firms looking to grow in a meaningful way, the Balyasny Asset Management co-founder said Thursday at the Capitalize for Kids Investors Conference in Toronto.
Without bringing in external teams, “you can’t get enough experienced people, and you certainly can’t expand into new areas where you previously didn’t have the expertise,” he said.
It’s not just hiring a portfolio manager, he said. “It’s also investing around them to build a top-tier team and give them the infrastructure and tools that they might need.”
Investors have been flocking to multistrategy hedge fund firms like Balyasny, Millennium Management and Citadel in recent years, in hopes that their pods of traders will help churn out consistent returns in increasingly volatile markets. Armed with billions of fresh money, they have been locked in a fierce competition for talent to continue to power returns.
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Balyasny said while the cost of talent has increased in dollar terms, it has accounted for the same percentage of the firm’s assets over time.
He cautioned firms against raising too much money before considering whether that cash is aligned with the fund’s ability to grow.
The approach of raising a lot of money and then trying to figure out how to deploy it is “very, very difficult,” he said, because talent is hard to hire and building teams around the portfolio managers takes time.
“For example, we just signed some quantitative teams that have two-year sit-outs and it takes them another year plus to build out their strategies,” Balyasny said. “So you have to budget for that in your capital planning.”
Every three to six months Balyasny does an internal review to ensure the deployment of capital is “hand-in-hand” with the firm’s growth in assets, he said.
Balyasny also said markets are struggling to figure out how to price in the eventual end of interest rate hikes. Traders’ views on when that might happen have been changing month to month, creating a “challenging environment for stock-pickers,” he said.
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