With more than $4 trillion in assets under management, bolstered by strong and stable fundamentals, the Sovereign Wealth Fund sector is a major force in the worldwide economy, according to Russell Adam, Managing Partner, CTPartners.
“During a period in which the global marketplace continues to grapple with them challenges of uncertainty, one trend remains clear that $4trillion SWFs continue to play a vital role,” he said.
Historically, he said, the SWF sector has not had an equivalent impact on the global talent landscape. That is because SWFs have tended to prefer an indirect investment model while relying upon local networks and internal development to satisfy their relatively limited talent needs. All of this is changing, however.
Today, growing numbers of sovereign wealth funds are exploring a more direct-investment focused approach, while expanding their investment purview into a variety of promising alternative asset classes, regions, and industries.
“There are major talent implications to these developing trends. Indeed, it seems likely that this financially powerful sector will play an increasingly significant role in terms of global demand and opportunities for top talent.
“In order to understand specific talent trends relating to SWFs, it is important to appreciate the diversity of this robust and dynamic sector. Each fund has its own unique culture and mandate. Their objectives might include preserving value, enacting policy, generating returns, or achieving some combination of these goals.
“At one time, it might have been unusual for a sovereign wealth fund to consider working with an executive search partner in order to recruit investment professionals with specific, high-level skills relating to any particular asset class or region. Instead, funds might have encouraged search firms to come to them with an occasional, interesting recruitment possibility, if and when this may have presented itself. Seldom were search partners asked to proactively work with SWFs to clarify and address their strategic talent needs. But that traditional approach is increasingly inadequate.
“In the wake of the 2008/09 global economic recession, SWFs are recognizing the need to recruit and retain top-quality, highly experienced global investment professionals. Whether gradually, or more aggressively, a number of firms are moving from indirect to direct investment models.
For many SWFs, high on their talent needs are investment professionals with expertise and connections in specific regions that are targeted for future investments, as a result of a growing trend toward greater SWF activity in emerging markets. Sovereign Wealth Fund investments have long spanned the globe, but now deals are cropping up in newer locations such as India, Russia, sub-Saharan Africa, and Latin America, in addition to the more traditional locations such as Europe, Asia, and the US. For Sovereign Wealth Funds, there is an increasingly compelling logic to the strategy of bringing expertise in-house, which should help the funds work in a more coordinated fashion to align political ends to performance needs.
So hiring is happening and demand for relevant professionals will inevitably increase. In addition to recruitment in specific investment areas as relevant, some SWFs are seeking to recruit expert global macro strategists who will either effectively or explicitly serve as Chief Investment Officers. With a push for greater non-correlated returns, some funds are also recruiting global talent to lead private-equity holdings, joint ventures, and the like in new sectors and asset classes.
SWF compensation levels are rising along with demand. But it’s rarely the case that a candidate would choose a position with a Sovereign Wealth Fund on the basis of the financial package alone. Rather, there are other powerful attractions, including the benefits of working within a well-capitalized and stable financial institution for which virtually all doors are open across the global financial marketplace.
The strongest candidates for SWF positions are often expatriate nationals who might either still maintain strong family connections within the country or people who have been working abroad with a strong desire to bring their expertise and experience “back home.” Other global executives might also be viewed as “having the right DNA,” if their credentials include a successful stint in the country working for an international corporation or blue-chip management consulting firm. It might also be the case that a strong candidate has ties and experience within the region, if not the specific country. Certainly, a cultural connection is an important element in enabling professionals to transition from outside the SWF to become a trusted advisor.
It is far from simple to recruit and retain key professionals, especially in an environment of rising competition for top talent. SWFs that partner with executive search firms are well advised to seek firms that combine global access to top talent across investment asset classes and regions with strong local expertise and connections. The right access inside and outside the country is essential. With it, a search firm must be prepared to serve as ambassador to desirable senior-level candidates less likely to have considered Sovereign Wealth Fund opportunities.
Of equal importance, well-qualified search partners can help Sovereign Wealth Funds – as well as the investment firms interested in better serving this market – to clarify strategic talent needs and put the right professionals in relevant positions. During a transformational period for this sector, time is often of the essence, since opportunities may be too rewarding to pass by.
Compensation packages at SWFs have traditionally lagged behind those offered by other investment firms. But during a transitional period for the sector, some change is likely on this front as well. Rising demand for top-quality, senior professionals with specific investment expertise are likely to exert upward pressure on compensation. The right search partner can be a valuable resource in this regard. At CTPartners, for example, consultants often provide guidance to SWFs about innovative compensation solutions that may best support their recruitment of world-class talent. As one close observer put it, “As an investment professional with a sovereign wealth fund, you are in a great position. You don’t have debt, you have all the cash you need, and you are a buyer at a time when a lot of other players are facing real challenges in this economy. To top it off, the relationships that you will be able to build are pure gold.”