Hedge funds are spending fortunes to win the talent war. It's changing the industry in the process.

Getty Images; Alyssa Powell/BI

The must-read story in the $5 trillion hedge fund industry used to be about who made the biggest trade or launched the biggest fund. Now it's about who made the biggest hire or got the biggest guaranteed payout.

As the increasingly institutional space has veered away from star funds run by a single genius to sprawling investment platforms with dozens of investing teams, the industry has grappled with a shortage of talent.

It's now such a finite...