Megan Nicholson worked on Wall Street for three-and-a-half years for firms like Lehman Brothers and Barclays Capital, but this year she decamped for a hedge fund that has just opened its doors in Chapel Hill, N.C.

The 31-year-old says she was drawn to Raven Rock Capital LLC — a corporate credit fund — after working in the capital introductions group within Barclays' prime brokerage business. Now in charge of Raven Rock's marketing, she was drawn to the fund because of its entrepreneurial spirit. Also, she welcomed the change in cities.

"It is very, very rewarding," says Nicholson, adding that she likes to shape the marketing of her fund. Speaking of the professionals leaving Wall Street firms for hedge funds, Nicholson says: "In many cases, it is a natural progression for capital-introductions professionals to take on hedge fund marketing roles, whether they are in New York or elsewhere."

Less than a year after the credit crisis forced the closure of some 1,000 hedge funds, these firms are back out looking for capital and hiring professionals like Nicholson from Wall Street firms. In addition to poaching from investment banks, the funds are bringing in professionals from endowments, foundations, and traditional asset managers, according to a recent report published by Heidrick & Struggles, which found that hedge funds are "now more active in hiring and taking advantage of the available talent."

"There is a robust war for talent in the hedge fund community," says Steve Keller, managing director and head of Americas financing sales at Bank of America Merrill Lynch.

While much has been made of the hires by boutique investment banks at the expense of larger Wall Street firms, the renewed push for talent by hedge funds may result in what Heidrick & Struggles refers to in a recent study as a "bank brain drain."

According to Heidrick & Struggles, the so-called brain drain has been felt by Deutsche Bank, Citigroup, Credit Suisse, Goldman Sachs and Barclays Capital.

At Deutsche Bank, for example, the German banking giant's co-head of global credit trading, Boaz Weinstein, left the firm to start up his own hedge fund. Citadel snared Todd Kaplan from Merrill Lynch to run its capital markets business in addition to two other professionals brought on from Merrill. Just last week the Chicago hedge fund hired three credit traders in New York from Merrill Lynch and Citigroup.

Aladdin Capital, meanwhile, started up a fund geared to underwriting DIP loans, hiring professionals from CIT Group Inc., and Fortress Investment Group brought on Jonathan Morgan from Barclays as head of research of alternative investments.

To be sure, the shift in talent has not always been one-sided. Earlier this year, Jack DiMaio left his own hedge fund, Dimaio Ahmad Capital, and signed on with Morgan Stanley as global head of interest rates, credit and currency trading.

The pickup in hires by hedge funds follows a year in which the industry was rattled by the greatest credit crisis in post-World War II finance.

Credit markets have healed and equity prices have appreciated from their March lows setting the stage for better returns among a wide range of investors.

This year, hedge fund operators are set to bring the highest returns in a decade — Bank of America Merrill Lynch estimates an annualized return of 19% for the year — and these returns likely will aid them in their bid for more investors.

According to an Oct. 12 report published by B of A Merrill, some of the biggest earners year-to-date include convertible artbitrage (30%), merger arbitrage (5.04%), and event-driven investment strategies (11.1%).

In coming years much of the new money from investors likely will come from pension funds, according to industry participants, who noted that the larger the assets under management at a fund, the greater the need for a wide range of specialists.

Heidrick & Struggles found in its survey of the industry that hedge funds are looking for professionals specializing in credit, distressed debt, equity long-short and macro, given the dislocation in credit markets and the preference for more liquid assets.

In addition to a greater need for traders, hedge funds have to bring on marketing specialists as well such as human resources professionals.

Investors may have struggled to get their money out of hedge funds in the third and fourth quarters of 2008, but the outflows appear to have stopped and there is actually new capital coming into hedge fund coffers.

More seasoned fund managers can still command the famous 2-by-20 arrangement — a 2% management fee on top of a 20% performance-related fee. But some upstarts may find they cannot as readily command that sort of fee and need to show some history of returns.

Additionally, market participants say that many funds can readily get financing from Wall Street firms offering prime brokerage services.

As one market player puts it: "Leverage has come back but not to the extremes of recent years."

At the end of the second quarter some $1.24 trillion of assets were under management in the hedge fund universe but the industry could have $1.4 trillion under management by year-end.

And the biggest explosion in growth for hedge funds may be evident in coming years.

According to Anita Nemes, managing director of the capital introductions group at B of A Merrill, the hedge fund industry could be managing $2.6 trillion worth of assets by 2013 and some 30% of this money will come from hedge funds.

Keller says sentiment in the industry seemed to first perk up in the second quarter. "There's been a real reversal in 2009," he says, adding that there has been a jump in the number funds looking to raise capital.

Keller, who has sold his firm's services to the hedge fund industry for 14 years, veteran of prime brokerage industry, says the risk of professionals leaving Wall Street in some ways is nothing new.

After all, one the fathers of the modern hedge fund industry, Julian Robertson, got his start at Kidder Peabody & Co. Of a younger generation is Michael Vranos — co-founder of Ellington Fund Management — who got his start with Kidder running its structured mortgage-backed securities desk.

But while many professionals on Wall Street are lured to hedge funds, not everyone has the success of a Robertson. "The transition from sellside to buyside is far more difficult than some believe it to be," Keller says.