Wednesday, May 4, 2016

4/5/16: Talent Is a Problem, But so Is Financial Services Model

When it comes to talent, hedge funds tend to hoover highly skilled and human capital-rich candidates like no other sub-sector. Which means that if we are to gauge the flow of talent into the general workforce, it is at the Wall Street, not the Main Street, where we should be taking measure of the top incoming labour pool. And here, Roger, we have, allegedly, a problem.

Take Steven Cohen, a billionaire investor hedge fund manager of Point72 (USD11 billion AUM). The lad is pretty good thermometer for ‘hotness’ of the talent pool because: (a) he employs a load of talented employees in high career impact jobs; (b) he tends to train in-house staff; (3) he operates in highly competitive industry, where a margin of few bad employees can make a big difference; and (4) courtesy of the U.S. regulators, he ONLY has his own skin in the game.

Cohen was speaking this Monday at the Milken Institute Global Conference about how he is "blown away by the lack of talent" of qualified incoming staff, saying that it is ”not easy to find great people. We whittle down the funnel to maybe 2 to 4 percent of the candidates we're interested in… Talent is really thin."

His fund hires only approximately 1/5th of its analysts and fund managers externally, with the balance 4/5ths coming from internal training and promotion channels.

The sentiment Cohen expressed is not new. International Banker recently featured an article by a seasoned Financial Services recruiter, who noted that “…many firms are finding it hard to attract the right candidates—and also failing to comprehend the true cost of finding the “right hire”” (see here:

Some interesting insights into shifting candidates preferences and attitudes and the mismatch these create between the structure and culture of Financial Services employment can be gleaned from this article: In particular, notable shifts in candidates’ culture with gen-Y entering the workforce are clearly putting pressure on Financial Services business model.

2015 study by Deloitte (see here: summed up changes in Generational preferences for jobs in a neat graph:

And the business graduates’ career goals? Why, they are less pinstripes and more hipster:

In simple terms, it is quite unsurprising that Cohen is finding it difficult to attract talent. While supply of graduates might be no smaller in size, it is of different quality in expectations (and thus aptitude). Graduates’ expectations and values have shifted in the direction where majority are simply no longer willing to spend 5 years as junior analysts working 20 hour days 7 days a week in a sector that does pay well, but also faces huge uncertainties in terms of forward career prospects (to see this, read:

Which means, High Finance is in trouble: its business model does not quite allow for accommodating changing demographic trends in career development preferences. Until, that is, the tech bubble blows, leaving scores of talented but heavily hipsterized graduates no other option but to bite the bullet and settle into one of those 5-years long bootcamps.

NB: Incidentally, recently I was a witness to a bizarre conversation between a graduate and a senior professor. A graduate - heading by her own admission into a Government sector job in international policy insisted that the job requires her to be entrepreneurial, 'almost running [her] own business’. The faculty member supported her assertion and assured that she teaches students how to run their own businesses in courses she provides on... international diplomacy and policy. Not surprisingly, neither one of the two ever ran a business.

The hipster haven ideals of ‘we are all so creative, we can run a business from our college dorms’ run deep. And they are not about the blood and sweat of actually running a business, nor the risk of going into the world penniless and earning nothing for years on end while the business is growing. Instead, entrepreneurship for the young is all about perceived fun of doing so.

There will be tears upon collision with reality.

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