Boutique investment firms and top hedge funds are slowly lapping up the cream of global banking talent as the financial crisis forces banks to cut staff and limit the pay of their top risk-takers.
From Singapore to New York, leading traders and sales honchos are making the switch as government pressure piles on Wall Street and European banks to cut multi-million-dollar bonuses.
The firms that still have a lot of assets under management, the hedge funds that have not been hit by redemptions, they are still picking up some of the money-makers from the big banks, said Pernille Storm at executive search firm Hudson in Singapore.
Singapore's largest hedge fund, Artradis, said this month it had hired a high-profile risk trader from RBS and a New York-based Credit Suisse executive, while investment advisory firm Fox-Pitt Kelton recently picked up five people from banks such as Merrill Lynch and HSBC to focus on Asia.
In London, UBS last month lost two senior European investment bankers to boutique Close Brothers, another to Lazard, and at least three energy bankers to Lexicon Partners.
In the United States, where the credit crisis led to the failure of Lehman Brothers, the fire sale of Bear Stearns and the takeover of Merrill Lynch, the trend is even more visible.
Earlier this month, investment banking boutique Moelis & Co said it had hired Chris Ryan, former global head of credit fixed-income at UBS, as a managing director in New York, its second high profile hire in a month.
UBS, the world's biggest wealth manager that has cut thousands of jobs globally, continues to hire selectively, a spokesman in Hong Kong said.
Boutiques have also been growing their clout globally, highlighted this week in Asia when U.S. M&A boutique Evercore Partners announced a strategic partnership with China's CITIC Securities.
It's possible for boutiques to actually hire top talent, which was almost impossible for them while the market was going ballistic from 2005 to the middle of last year, Thomas Hester, head of equity at Fox-Pitt Kelton, told Reuters.
Hester, who was former head of sales at ING Barings, is among the new hires at the U.S. firm, mostly based in Hong Kong.
Andrew Sibbald, a founder of Lexicon Partners in London, said boutique firms' partnership model meant creative, bright people who are unfettered by all the woes of the big banks can just get out there and find business.
There's greater freedom to spend your time advising clients rather than focusing on internal issues, and the compensation model is untainted, he said.
One trader who recently made the move to a smaller investment firm said, along with the cultural differences, money was a big driver.
The chances for getting paid a lot from bulge bracket firms for most people in equities has gone down enormously, he said, declining to be identified in commenting on rival firms.
Many boutique banks have weathered the crisis relatively well, winning clients keen on independent advice and largely avoiding big leveraged bets on risky credit products that bought bigger Wall St and European rivals to their knees.
Their hiring spree has also spread to smaller finance centers such as Mumbai. Centrum Capital this month hired Munesh Khanna, a former banker with Merrill Lynch's Indian joint venture, as managing director of investment banking, and Aarthi Ramakrishnan as head of equity capital markets from Credit Suisse.
I can see a situation, subject to funding constraints, of senior bankers moving en masse as a team or possibly setting up a boutique themselves, said Nick Hellen, a partner at Executive Access Ltd, a Hong Kong-based executive search firm.
The financial crisis wiped out many hedge funds around the world and the industry is expected to shrink this year to 2005 levels, but those making money have plenty of pulling power.
Most hedge funds function on a two-and-twenty model, meaning employees earn 2 percent of assets they manage, regardless of the firm's success or failure. They also get to keep 20 percent of profits if the fund is making money and is above a minimum level of investment returns known as the high water mark.
For example, Artradis' two main funds have combined assets under management of about $3.5 billion and returned 27 percent and 35 percent, respectively, last year, according to the company. That means a potential return of more than $200 million for the two funds in a firm of fewer than a dozen fund managers. So while U.S. President Barack Obama wants to set up a $500,000 cap on top executive pay at companies receiving taxpayer funds, executives working for successful hedge funds can still earn several million dollars a year.
If the bank overall is not having a good year or has massive writedowns, then you may not get a bonus at all, said Hudson's Storm. Those guys have a very short window of time where they can earn that kind of money so they are obviously picking institutions where they can optimize their compensation.
(Additional reporting by Michael Flaherty in HONG KONG, Narayanan Somasundaram in MUMBAI, Quentin Webb in LONDON and Paritosh Bansal in NEW YORK; Editing by Neil Chatterjee and Lincoln Feast)