Before Dodd-Frank, many firms would simply name their CFO or COO as their chief compliance officer, said Jordan, but given the quantity and sophistication of the work involved, "very few are willing to take on that role."
Some equity firms have used the compliance opportunity to create their first general counsel position, Elovitz said.
Some of these positions are being filled by experienced lawyers from financial institutions that have contracted, Elovitz said.
"There are lawyers who have gone from financial institutions into hedge funds and private equity firms," he said, while others are coming from government and law firms.
Jordan said clients have tapped several Davis Polk associates. In the last three years, eight of the 10 associates who left Davis Polks' investment management group went to hedge funds.
Many of them landed in the legal department, Jordan said, and some might have a dual role in compliance.
The explanation for increased demand for attorneys in the compliance role is two-fold, Reback said. The first is the continual increase of regulations, and second, the culture of firms has shifted to asking compliance questions first before making business decisions rather than jumping into a decision, he said.
"The role of compliance in funds has evolved from a back office function to more of a middle or front office function" requiring involvement with the investment staff, Reback said.
The regulations have led to more interaction between hedge funds and outside counsel, he said, leading financial firms to pay law firms more in billable hours.
Hiring full-time compliance and legal advisers makes good business sense, said Steven Nadel, a partner in Seward & Kissel's investment management group.