Headhunters: an industry transformed

IFR Asia, December 2009

The headhunters who serve Asia’s banking community have mirrored their clients through the financial crisis. A severe plunge; an unexpected bounce; and a reshaping of the industry along the way.

“The business fell off a cliff for us in December and everything came to a grinding halt,” recalls John Wright at Global Sage in Hong Kong. “Everyone had to reorganize their businesses and shift people around; it took them a few months to figure out who was going to do what. But now we find ourselves massively busy – we had a record July.”

Other firms mirror that experience, and a few trends have arisen along the way. One is the seniority of hires and searches. In the good times, work tends to come in bolstering teams, or picking off star bankers in particular areas; over the last year, worldwide, so much of the change has been at the very top. “The biggest trend that’s happened is that very senior executive arrangements keep changing,” says Wright. And the institutions that have come through the crisis in the best shape are aggressive. “Firms who have got a good grasp on the future are prepared to consider and recruit the very best talent out there and take advantage of this time to bolster their business. As that restructuring happens, and as they get their liabilities under control, they are looking at how they are going to grow. Our clients are all looking at their growth plans and Asia has been the most robust region in the world.”

As the financial crisis unfolded, some interesting shifts took place. The most visible in Hong Kong’s corporate recruitment industry has been the bold growth of Heidrick & Struggles, which has hired some of the biggest names in the industry. Harry O’Neill, formerly of Whitney Group, came first, as head of Asia financial markets; next was the former head of Akamai in Asia, Daren Kemp; and finally, in probably the biggest surprise of all, Stephen McAlinden, a founder of Eban. Those who know the firm well point to the influence of Daniel Edwards, the mid-30s ultra-endurance athlete who heads the Tokyo office and is co-global practice managing partner for Heidrick’s financial services practice. “He’s the brains and the rock star behind the whole thing,” says one person who has dealt with him and the firm. “He’s going to be the next CEO of the company. His plan is to control 70% of the market so that H&S can dictate pricing.”

Asked what the relative strength of a global player like Heidrick is, Harry O’Neill says: “It’s reach, really, as much as anything else. The boutiques are very good at a local level, but the reality was that they had very good individual pieces of the business in the regions, rather than one good global business.” Additionally, for senior management or boards of major institutions, there is a certain safety in hiring a top five firm because they have the security of working with a high street brand and people are therefore less likely to be blamed for using them than if an experience with a boutique works out badly.

Wright at Global Sage also believes that scale has helped, particularly in an environment in which so many global firms are being overhauled, usually led out of the US or Europe. “I can’t stress to you enough how important having a global business has been to our survival,” he says. “Our ability to source all this information worldwide has given us an edge.” In the days before our conversation, JP Morgan, Morgan Stanley and UBS have all announced very senior hires globally – chief executives, investment banking heads – with ripples that will be felt worldwide.

Some feel that the big firms were better equipped than the boutiques to ride out the storm. Heidrick is one of the few listed headhunters so we know how that business did through the tough times: in the first quarter of 2009, ending March 31, it made a US$32.4 million operating loss, or $19 million excluding restructuring charges. The operating loss was US$11.6 million in the second quarter. This gives some illustration of the strain corporate recruitment firms felt in the first half of the year.

“It was an utter bloodbath. There was carnage in this industry in the first quarter and most of the first half,” says one headhunter. “Big firms can survive that but it’s much harder for a boutique.”

That said, while some boutiques have struggled and even fallen over the last 18 months, others appear to have flourished. The benchmark headhunters poll in Asiamoney magazine showed two lesser known groups climbing through the ranks, notably Matthew Hoyle Financial Markets, whose founder, Matthew Hoyle, was name the best executive overall in Asia. Similarly Wellesley Partners, set up only in 2005, has gained ground in a range of fields from investment banking to prime broking, fixed income and derivatives, with Christian Brun on the investment banking side an example of a rising star there, competing with established investment banking leaders like McAlinden, Wright and Executive Search’s Max Lummis. Of the boutiques that have suffered losses, Eban continues despite McAlinden’s departure, with Simon Waterson and Dionne Tai running the Hong Kong office; Whitney’s future was much darker after O’Neill left, with a major law suit between him, Whitney and Heidrick after his resignation. Whitney itself has since gone under (O’Neill took many of his Hong Kong team with him to Heidrick).

Asked what the selling point of a boutique is, banking specialist Christian Brun at Wellesley says: “Attention.”

“Our approach has been just working with a very small number of clients and doing as much as possible for them,” he says. Brun represents the opposite direction to McAlinden and O’Neill – he left the London office of Heidrick in order to set up a boutique. He’s known for being particularly closely connected to Credit Suisse, Morgan Stanley and Nomura, and the firm generally was very closely linked to Lehman Brothers, which had the consequence of making last year a much better year than it might have been as they moved people across to Nomura and replaced people who left afterwards. “Being a global firm doesn’t make any difference for a lot of the stuff we do,” he says. “At the end of the day it’s the relationships you have with the people at the top and the banking community generally.”

But some feel that the need for scale becomes more important as banks realise the need to make on-the-ground hires in mainland China and India, rather than just big-hitter bankers in Hong Kong and a couple of other hubs. “When you drill down into the key areas, China and India are the most significant,” says O’Neill. “In our previous lives, Stephen and I operated out of Hong Kong and Tokyo, Daren had a Singapore office, but none of us had anything in China, India or Australia. Now, we originate these searches here, and it’s Chinese consultants in China and Indian consultants in India who do the work with us.

“One of the features of this year has been that international firms are increasingly recruiting from domestic Chinese financial institutions – it’s one thing you really need to be on the ground to be able to do. Being able to approach candidates at a domestic level is very important.”

In terms of the money firms make, opinions differ on how much fee pressure there has been. At the top level, the point is not really the charge – typically varying between 25 and 33% – but the fee cap, which all firms agree to. “A head of investment banking in the region might be paid $7 million this year depending on what the firm is,” says one headhunter. “We wouldn’t get one third of that, we’d get whatever the cap is, perhaps half a million.” Others report that the money out there for senior hires varies, too: one says that Citigroup is offering multiple-year guarantees for some individuals, which is having a driving effect on the market.

“There’s an awful lot of hiring in China, natural resources and FIG – mainly senior strategic hires,” says Brun. “Next year’s going to be like 2007 again. We’re already seeing people being paid at levels I find amazing, right back up at 2007 levels.”

And, after all the turmoil, the retrenchment and the re-hiring, are there still good people out there?

“At a very senior level there are still good people out there – the very, very senior,” says Wright. And the process of rotation among that echelon may still have another round to go.