Garnering yet further characteristics of private equity firms, the Financial Times reports on several sovereign wealth funds doling out considerable compensation to attract top-level private sector executive talent.  Will these move help take the politics out of decision making?

Sovereign wealth funds raise pay levels to attract top executives

By Martin Arnold in London, Henny Sender in New York and,Jamil Anderlini in Beijing

Sovereign wealth funds are struggling to attract top-notch executives to help deploy their investments and are having to offer more generous remuneration and hire headhunters to remedy the problem.

Financial sector specialists believe the more aggressive tactics will help SWFs poach some of the most talented executives from western private equity and investment firms.

As state-backed funds in Asia and the Middle East increasingly flex their financial muscle, they are seeking both investment professionals with experience of western and Asian markets and more high-profile non-executives to bolster their legitimacy and the political contacts of their advisory boards.

China Investment Corporation, the country’s new $200bn foreign exchange fund, plans to approach Alan Greenspan, the former chairman of the US Federal Reserve, to join its international advisory board.

CIC has also launched a unique recruitment website in a push to hire dozens of investment professionals.

“Nowadays, the only way to attract good people is by offering big salaries. Everyone uses headhunters – it is all based on price,” said one senior staffer at the Abu Dhabi Investment Authority.

With private equity finding big deals tougher since the credit crunch, more buy-out executives could be tempted to switch to SWFs, which are raising record amounts and attempting more high-profile deals.

However, while state-backed funds are improving their pay packages, private-equity stars would still have to take big pay cuts to join them and are put off by their lower return-on-investment targets and close links to government owners.

Most of those making the switch are “mercenaries” – typically young, frustrated, mid-level professionals at buy-out firms looking for new opportunities, say headhunters.

The use of headhunters represents a shift in strategy as many of the SWFs change emphasis from placing most of their money with outside managers to managing it directly themselves.

One example is Dubai International Capital, which has 75 professionals from more than 20 nationalities, and expects to raise this by 50 per cent in 2008.