Lateral investment management refers to the practice of investment management firms hiring investment professionals from other firms to expand their capabilities. This allows firms to quickly add expertise in new asset classes, strategies, or geographies. With increased competition in the investment industry, many firms see lateral hiring as a cost-effective way to grow, compared to developing talent internally or acquiring whole firms.
Motivations for lateral hiring in investment management
There are several key reasons investment management firms pursue lateral hiring:
1. Gain specialized expertise: By hiring a portfolio manager or analyst from another firm, an investment manager can immediately add skills in a specific sector or asset class rather than spending years training someone internally. This can help expand the breadth of investment products they offer clients.
2. Enter new geographies: Hiring locally-based managers can provide insights and access into new regional markets like Asia, Europe, or Latin America. This facilitates offering suitable products and marketing for each geography.
3. Quickly scale growth: Adding lateral hires scales a firm’s talent base and assets under management much faster than organic training and development. This speeds the growth trajectory.
4. Lifecycle succession planning: Laterals allow orderly transitions as senior portfolio managers retire. Rather than risk client attrition, seasoned managers from other funds can step into departing PM roles.
Risks associated with lateral investment hires
While lateral hiring has benefits, there are also risks investment management firms take on with this strategy:
1. Culture clash: Outside hires may struggle integrating into the company’s cultural norms for communication, risk management, collaboration, etc. This can reduce cohesion across the investment team. Robust onboarding and clearly conveying expectations help mitigate this risk.
2. Loss of trade secrets: A constant concern is lateral hires sharing sensitive client data, trading algorithms, or other intellectual property from their previous employer, either intentionally or inadvertently. Strong information security protocols should be in place. Non-compete agreements also limit this.
3. High compensation: More seasoned lateral candidates often demand higher pay packages. This increases overhead expenses and pressures firms to rapidly generate assets from the new hires just to break even on upfront costs. Careful ROI assessments help avoid overpayment.
4. Mission misalignment: Some laterals end up dissatisfied with the new firm’s business strategy or organizational processes. Clear expectations should be set so the opportunities and responsibilities align with what motivated them to move laterally.
Best practices for smooth lateral assimilation
While not without risks, lateral hiring is likely an enduring human capital trend across the asset management industry. Below are several best practices for seamlessly assimilating these outside hires:
1. Structured onboarding program: Multi-week onboarding plans with assigned peer mentors help hires adapt faster to new systems and team interactions. This accelerates productivity.
2. Objective client transition process: Documented procedures governing how accounts transfer and policies for client communications prevent relationship disruptions and build trust.
3. Cross-training investment staff: Existing research analysts learning a new sector from the lateral skills transfer knowledge. This expands capabilities beyond just the new hire.
4. Align incentives programs: Ensuring compensation and bonuses encourage collaborative, firm-first focus avoids silos or power struggles from emerging across laterals versus legacy staff.
5. Ongoing cultural immersion: Sponsoring lateral participation in corporate events, retirement planning seminars, holiday parties or volunteering events bonds employees to the firm’s mission and values.
When approached strategically, lateral hiring allows investment management firms to scale talent and offer expanded, specialized products and services to clients and investors. A structured assimilation process focused on knowledge sharing mitigates risk and organizational disruption. Lateral moves must enhance capabilities beyond just the individual contributor to maximize value.