The hedge fund industry has faced many challenges since the Great Recession of 2008–09. Many hedge funds were liquidated, and many surviving funds provided anemic financial returns to investors. In recent years, the industry has rebounded to some extent—although hedge funds’ performance trailed the broader stock market. Eurekahedge reports that the average fund made 6.96 percent for its investors in 2019, whereas the S&P 500 Index of stocks generated a 31.49 percent return.

Experts believe the strong financial returns enjoyed by investors in the late 1990s may never be achieved again because of growing demand for greater transparency and institutional quality policies and procedures from potential institutional investors (e.g., endowment funds, pension funds, and insurance firms). If the pendulum swings back toward more regulation, it will also become harder to launch and manage a hedge fund.

Many smaller hedge funds are struggling to attract institutional investors (which have replaced high-net-worth investors as the main source of the industry’s capital). IBISWorld predicts that the majority of firms exiting the industry will have assets of less than $100 million, “and growth will come from new funds by industry leading managers. Other small funds will be forced to consolidate.” Additionally, investors are demanding lower fees and many hedge funds are complying, which is reducing industry profit. Traditionally, management fees hovered around 2.0 percent, and average incentive fees were 20 percent. From 2015 to 2018, the use of the 2 percent (fund management fees)/20 percent (average incentive fees) model fell by 65 percent, according to a global survey by Credit Suisse Group AG. In 2018, 46 percent of institutional investors surveyed by J.P Morgan paid less than 1.49 percent, according to the 2019 Institutional Investor Survey. J.P. Morgan also reported that nearly half of respondents were paying an average incentive fee of 17.5 percent to 19.99 percent in 2018, but 40 percent were paying less than 17.5 percent. In addition, consulting firm Grant Thornton reports that “investors are requesting more nontraditional solutions for managing the risks of their portfolios, such as requesting managed accounts and stand-alone funds.”

Demand will continue for skilled hedge fund professionals. Job opportunities for financial analysts who work for funds, trusts, and related firms are expected to grow by 6 percent from 2019 to 2029, according to the U.S. Department of Labor, or faster than the average for all careers.

Required skill sets are changing—especially at quantitative firms, but also at any firm that uses data analytics, machine learning, artificial intelligence, and other technology in its front, back, and/or middle offices. “As managers react to changes in the business environment and the competitive landscape for talent, many are evolving the profiles of the individuals who they are looking to hire,” according to the 2017 Global Hedge Fund and Investor Survey from the professional services firm EY. “The most stark change appears to be a desire to hire individuals who have an advanced understanding of technology and data analysis. Ph.D.s, computer programmers, and individuals with degrees in computer sciences are just some of the more sought-after individuals.”

Opportunities will increase for other types of workers. “Hiring is ramping up across the financial services industry, especially for job candidates with experience in banking and financial markets, risk and compliance, and operations,” advises staffing services firm Robert Half Accounting & Finance in its 2020 Salary Guide. Firms are seeking “candidates with information security experience to assist with cybersecurity initiatives. Financial and regulatory analysts, compliance officers, and internal auditors are in demand as a result. Financial services organizations are increasing salaries and providing perks such as flextime and more vacation days to attract and retain top performers.”

Spencer Stuart, a global executive search and leadership consulting firm, says that growth in the hedge fund industry has “made the sector a draw for high-profile traders and portfolio managers and, increasingly, for top talent in functions such as sales and marketing, investor relations, legal, operations and technology, finance, risk management, and human resources.” Spencer Stuart believes that a “shortage of top talent could be a greater impediment to growth at successful firms than access to capital.” Hedge funds that recognize this reality and effectively manage current employees and attract top performers for new positions will be best prepared for long-term success in this highly competitive sector.

Overall, the hedge fund industry continues to compete with the private equity, venture capital, investment banking, and other industries for the most skilled workers. “Managers are no longer competing solely with other investment managers,” according to EY’s 2017 Global Hedge Fund and Investor Survey. “As technology and quantitative skills become ever more important, the range of competitors for top talent extends to FinTechs, technology giants, and an ever-increasing number of innovative technology start-ups.” At both the executive non-executive levels, hedge fund managers reported that investment professionals (portfolio managers, researchers, and traders) were the most difficult positions to fill. At the executive level, marketing and investor relations professionals ranked second, followed by technology and data management personnel and risk management professionals.

A growing number of hedge funds are seeking to poach new employees from Silicon Valley. Dice.com reports that hedge fund firms are “actively hiring candidates with artificial intelligence and machine learning experience from the likes of Facebook, Apple, Amazon, Netflix and Google…and luring them across with big pay packages. If a candidate has a Ph.D. in the right subject from Stanford, Caltech, MIT, NYU-Tandon, or an Ivy League university, and internships at Apple, Netflix, Google, Facebook or another Silicon Valley giant, then they can get an offer in the $350,000 range right off the bat.”

Salaries for hedge fund professionals rank among the highest in any industry. The average portfolio manager earned total compensation (including bonuses, commissions, and options) of $1,422,784 in 2018, according to Institutional Investor’s All-American Buy Side Compensation report. Research analysts had total average income of $678,189. The most-experienced and highest-skilled hedge fund managers and analysts will continue to enjoy lucrative earnings as hedge fund firms compete for top performers. It’s important to remember that only the most skilled managers at highly successful funds make such lofty incomes. Glocap Search LLC reports that analysts straight out of college with an MBA and little or no prior hedge fund experience earn base salaries of $90,000 to $120,000. Support staff earn much lower salaries. For example, hedge fund accountants with one to three years of experience earned salaries that ranged from $42,000 to $79,500 in 2020, according to Robert Half Accounting & Finance. Those with three to five years of experience earned $54,250 to $102,750. Salaries for hedge fund accounting managers ranged from $65,000 to $124,250.

The coronavirus pandemic, which started in late 2019, has had a tremendous impact on many industries, including the hedge fund industry. According to an article in Investopedia, hedge fund allocations accounted for 40 percent of allocations in 2018, dropped to 33 percent in 2019, and down to 23 percent in 2020. On a positive note, however, hedge funds "exhibited impressive outperformance during the COVID-19 crisis in 2020." The article also points to Preqin's "Future of Alternatives 2025" study, which forecasts hedge funds "will surge over the next few years as actively managed fund strategies perform well in a volatile environment."

One trend that is expected to continue post pandemic in the hedge fund industry is a change in the work environment for hedge fund workers. Throughout the pandemic many hedge fund company employees have been working remotely or according to a hybrid schedule of a mix of on-site and remote work. According to an Alternative Investment Management Association article, hedge funds have demonstrated that they can reduce risk and deliver performance better than other asset classes, and investors will take notice of this in the coming years. The article also notes that the forced business lockdowns and remote work accelerated digitization in the industry and this trend is expected to continue. Hedge fund firms are increasing their investment in building and improving their technology and digital capabilities.