Good morning, Alex. Could you please tell me a little about you and HC Group?
Hi Jonathan. I joined HC Group in 2012 in our London office before moving to America to help grow our global agribusiness practice. The practice is focused on leadership assignments across agriculture, animal nutrition and health and food ingredients.
We help companies that feed the world. Playing a small role in that mission keeps me passionate and excited about the industry’s future.
HC Group was established in 2003. We identify business-critical talent for organizations across the global energy, metals and agricultural value chains. We also provide data-informed talent advisory around organizational structure, strategy, and compensation.
How important are ags for HC Group?
HC Group works across the commodities value chain. Ags is one of the three pillars of our business, alongside energy and metals.
Today, the war for biofuel talent has never been fiercer. As energy companies seek to decarbonize their platforms, the demand for vegetable oil procurement, analytics, and trading professionals outweighs the supply. This talent pool is highly specialized and relatively sparse. It is now being recruited by both the agriculture and energy industries, leading to an unprecedented level of competition between these two sectors.
Given the strength of our network in the energy and agriculture market, we have a unique position in the industry. It has helped our contacts and clients pivot from the agriculture to the energy industry.
What are the challenges in getting people to move from ags to energy?
I would say location is often the challenge. In the US this talent pool is primarily located in the US Midwest. People are often reluctant to relocate away from the Midwest to traditional energy trading hubs in the US Southeast or East Coast. Energy companies with flexibility around location will be the best positioned to secure the talent.
How is the ag-employment market now? What sectors are hot – what types of companies are recruiting?
During 2022, US energy trading firms, refiners, and producers were hiring commercial heads for their biofuel platforms. We worked with them to identify individuals capable of creating the strategy to build the business. It is not as easy as it sounds; it can be challenging to source the necessary feedstocks. These individuals often must educate the energy majors about the ags markets. Oil traders might ask, “What do you mean you’ve lost the crop – where has it gone!” You must explain that growing crops is different from drilling for oil!
This year, in the US, these firms are building their teams and hiring contributor personnel, such as biofuel feedstock procurement specialists – the rung below the commercial head. The demand for biofuel expertise has cooled off relative to traditional vegetable oil feedstocks, with the focus now on advanced feedstocks experience with products such as UCO and tallow.
In the past year, the energy-trading houses have been looking to diversify their revenue schemes by going into ags. The energy trading companies have been relatively agnostic as to the agri-product line.
Energy trading houses such as Gunvor, Hartree Partners and Vitol hired new agricultural trading talent to their platform. Existing hedge funds such as Citadel and Millennium expanded their teams, while more recent entrants such as LMR Partners, Qube and Squarepoint have entered the market.
The significant hedge funds are also looking to diversify into commodities, agriculture included. Millennium is an example. The company recently hired Todd Thul, ex-head of Cargill’s corn desk.
In previous commodity bull markets, hedge funds have hired successful traders only for the traders to crash and burn. How can a hedge fund ensure that a physical trader will be profitable independent of the physical flows and assets and without access to information and analysis?
It is the million-dollar question!
While past performance does not guarantee future returns, it’s arguably the most valuable measurable when hiring talent. The number of individuals the hedge funds are genuinely courting remains relatively small, given how challenging it is to consistently return steady P&L numbers, year in and year out, without having an asset infrastructure behind you.
The hedge funds have more interest in talent that has already left a trading house and proved themselves in an asset-light environment without the information flow and support system to help them make trading decisions. Industry reputation and referencing talent within their peer group is one way we look to understand past performance, which in turn gives a good idea of the top percentile of successful prop traders.
I hear that the market for traders is so hot that hiring firms offer multi-million dollar signing fees. Is that true?
Yes. While some rumours are hearsay from traders, and numbers get inflated, some individuals are receiving million-dollar signing-up fees to move. But that’s also the compensation for the opportunity cost of leaving a safer environment in an ABCD. It’s a risk-reward decision. There is a high demand for agri-prop talent, and traders will look to capitalize on their market worth.
I sometimes wonder why a high-performing leader would leave a trading leadership role to move to a hedge fund. Typically, the number two and number three trader on the desk will make that move. (1)
What advice would you give to a traditional trading house in this environment – how can they keep their teams together?
Trading companies must expect a certain level of attrition as they cannot compete with hedge funds and energy trading houses in terms of potential bonus upside. If individuals leave the business purely for compensation, that’s not something I would spend time worrying about.
High-performing organizations require people strategies. Engagement, retention, and growth are all intertwined and should be essential business strategies. Ultimately, engagement is about employee discretionary effort; they can give or withhold it at any time. Leaders need to know their employees well and react to their needs.
Communication is vital in any organization, and it is what underpins everything. To retain talent, focus on skillset development and leadership development. Better leaders create better teams, which creates higher retention. Focus on employee development. It’s a manager’s responsibility to grow your team’s skillsets and help them achieve their goals individually and as a whole.
If you are a big trade house, you must ask yourself why other people who are not necessarily or exclusively motivated by money are leaving. Maybe you don’t have clear succession plans in place.
The line manager should not underestimate the importance of one-to-one meetings to engage and retain employees. They give line managers a clear line of sight about what the employee needs to do and where they are going. They enable the line manager to have individual time with the employee, understand if they are OK, and detect any early signs of any changes that need to happen. Do they know their future career path and the succession plan for their leaders?
Succession planning is a serious issue for the industry. The ag industry is cyclical, and you see that in hiring and firing. Four or five years ago, the ag sector was depressing – the margins weren’t there, and companies were laying off traders. The problem was that they let go of the mid-career traders – the 25- to 35-year-olds. The trading houses have gaps in their succession plans. In addition, structures flattened during the lean years, and people don’t now have the rungs to move up the ladder.
Ask yourself how you engage with your traders on their career plans. How often do you sit down with them and map out their future? What are their pain points – their frustrations? The talent pool is in tight supply at C Suite succession planning and for mid-level bench strength. There is a missing generation of 40-55-year-olds, and everyone is struggling to fund succession planning solutions. The reality is young talent earlier will be pushed up faster into leadership roles than ever before. (2)
Looking at the other side of the coin, what advice would you give someone approached by a hedge fund employer?
First, you must ask yourself where you want to be long term. Some people like to stay in an individual contributor role – to stay as a trader on a desk, and some want to move into leadership positions. These are two different paths. If the latter, you should probably stay.
Second, you should do your due diligence on the platform you are joining. You must understand their mindset and their expectations – are their expectations realistic? You know the returns you can achieve – would the new platform be comfortable with those returns? You must also evaluate their risk appetite. Traders must take risks to make money, but some employers may not be comfortable with those risks.
Third, you must also ask yourself to what extent the new platform understands commodity markets – particularly the ag markets. It may be riskier if you join an equity hedge fund with no experience in commodities.
Fourth, you must ask to what extent the new platform is investing in building its commodity trading capacity. For example, Citadel has built a first-class commodity research team that will help traders analyze their markets, but it also shows that they are investing in the sector long term.
Fifth, you must balance the risk and reward because a fund will pay you more than a trade house when you get the market right but will fire you quicker when you get it wrong. And traders always get markets wrong at some stage in their careers.
Last, you must ask yourself, what if they fire me within two years? Have I burnt my bridges? Is the risk worth it?
Hedge funds are fantastic places to make money as a trader if you are successful, but it is a challenging environment if you have a bad run. An equities hedge fund may not understand the commodity business. I would feel more comfortable recommending someone to join an energy trading house that understands physical flows and how the commodity markets work. There are tremendous opportunities, but you must be selective.
Commodities have a reputation for being male-dominated and macho. To what extent is that reputation warranted?
That is a fair assessment, but it is starting to change. It’s changing at the junior level as organizations now hire different profiles out of college. The biggest challenge lies in middle and senior leadership because all the companies have the same profile. We recently ran a position for a senior economic analyst for the global ags landscape, and only eight per cent of the candidates were female.
HC Group has launched a Diversity Champions series for its content hub, HC Insider. The series will feature senior-level talent representing various backgrounds and experiences to promote and drive inclusion in the commodity markets. Most recently, we interviewed Jaime Goehner, Commercial Manager at ADM, about her career journey, what has been critical to her success, and how she is helping to develop talent.
If you would like to be interviewed in the Diversity Champions series, please contact Heather Falgout to discuss.
Suppose your best friend’s daughter wanted to get into commodities – would you advise her to go into energy, metals or ags? Do the different sectors require different profiles?
The skillsets you acquire are transferable between the three sectors, but I recommend agriculture. I love the industry and its people, so that is probably a biased answer!
And education levels – Bachelor, Masters, MBA, PhD? When I began in the business, the big companies liked to recruit people after a BA degree and train them themselves. Is that still the case?
Yes, graduate development programmes are a must. However, companies need to be aware of changing desires of the next generation, particularly around energy transition and sustainability. Companies need to engage in how they are part of the solution.
That said, and why HC Group exists, companies always need external talent to take on new markets and regions. The same applies to building a vision for these individuals, given the increased opportunities out there. That messaging is critical and a significant part of our work for client partners.
Do you see a change in capabilities required to be a successful trader?
Much remains the same. Curiosity, commerciality, and relationship building, but added to the mix now is the need to be technologically savvy. Digitization and the velocity of the market mean traders need to understand risk management much more and be literate when it comes to developments in analytics and modelling. We recommend everyone tries to get a basic understanding of coding and statistics.
How do you imagine AI will change future trading desks?
The most significant advancements are taking place in the pre-trade space for AI. Companies are increasingly looking at more advanced ways to analyze and interpret the vast quantities of structured and unstructured data aggregators provide.
What advice would you give young people thinking of getting into the sector?
First, invest in yourself. Your only competitive advantage is your ability to learn faster than your competition. What are you doing to support your career? Investing in yourself is the best investment you can make.
Second, build relationships within the industry. The people we hire are typically the ones recommended to us by their peers, their managers from years ago, or their competitors with whom they trade. Build networks.
Thank you, Alex, for your time and input.
(1) I may be able to add a little to that. Many successful traders don’t know if they are only successful because they work for an ABCD+ company. You sometimes see top traders moving from the big trade houses to test themselves – to find their true worth.
You also have top traders who feel too restricted by their VAR limits. Their companies may have stopped them from a position, only for the market to turn and move in their favour. Fausto Felice – the ex-head of Cargill’s wheat desk – mentioned this when I interviewed him for my book Commodity Crops – And The Merchants Who Trade Them.
(2) In The New Merchants of Grain, I asked CJ Van den Akker, then head of Cargill’s trading activities, how he felt about people leaving. He replied:
I have mixed feelings about that. In one sense, it bothers me. Through our training, we’re feeding our competitors with talent. But at the same time, I’m proud that we recruit and train people so well. That tells you a lot about this company and how we invest in our people. I think that’s a good thing.
But frankly, there is no choice at the end of the day. We’re a pyramidal structure. People are promoted on merit and will fall out of that system. Our objective is to maintain our strongest talent. We don’t always succeed. But not everyone can reach the top, so people will always seek other opportunities. I think that’s OK. It’s the way the system works; it’s inevitable.
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