Hedge Fund Compensation Report 2008

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Executive Summary

The 2008 Hedge Fund Jobs Digest Compensation Survey was conducted in Summer 2008 and received hedge fund compensation data directly from hundreds of hedge fund portfolio managers and employees from hedge fund firms, both large and small, such as Bank of New York Mellon, Barclays Global Investors, Citigroup, Fountain Advisors LLC, HSBC, Kellogg Capital Group, Lansdowne Partners and many others.

Given the current state of the market, the results tell an interesting story and reveal that these players in hedge fund jobs knew trouble was on the horizon. This year’s report reveals that 42% are happy with their current level of compensation – up from only 25% last year. Despite no significant increase in compensation, there was a big increase in hedge fund job satisfaction – an indication that, before Wall Street’s meltdown, hedge fund employees knew the market had shifted. Clearly, this year the international community came into play, as the large firms continue “off shoring” work, increasing the supply of hedge fund jobs in India.

The highest hedge fund earnings by title include Partner or Principal, Director, Portfolio Manager and CFO. High hedge fund compensation is relative – if the top paid employees in the firm are paid much more than others, there will always be dissatisfaction.

We found huge ranges of earnings by title and that hedge fund bonus percentages vary significantly depending on responsibilities and experience. We heard from many respondents that their compensation is disconnected from their individual performance and relied much more on fund or overall firm performance – a driver of dissatisfaction. The average total cash compensation number grew 4% over last year to $260,000 USD. Although primarily a North American based report, over 10% of respondents were in the UK. We found the UK is also feeling impact of the market shift earlier this year, as the average compensation for hedge fund jobs in London actually decreased over last year.

Bigger is not necessarily better as personal compensation varied by hedge fund size and performance. We found that funds in the $500 million to $1 billion range pay the best. Small funds struggle to build critical mass from a personnel point of view due to management fees not being high enough to cover a large base salary pool but as funds increase in size to over $1 billion AUM, the average pay actually decreased.

When the fund performs well, employees are paid well – most of the time. The hedge funds reporting this year performed well with the majority reporting more than 10% return (and 15% reporting over 25% return). The highest average pay by fund performance did not correlate with this, however, as those firms reporting flat performance (that is, no return) had the highest average hedge fund pay.

Different from last year’s report, this year we found that MBAs in hedge funds on average were earning less than non-MBA’s in the U.S.. Although an MBA is not required to be successful in hedge funds, our hedge fund jobs database indicates that many of the highest paying positions still require an MBA.

By investment banking standards, a hedge fund culture and schedule looks pretty tame. Almost 90% work between 40-60 hours per week. When it comes to vacation earned, the numbers are pretty generous. 71% earned 3-5 weeks, although they did not take all of that time off.

Once again, this year’s report showed this is a relatively new industry with 67% of respondents reported having 5 years or less of hedge fund industry experience. Now, these finding do not equate to most people assuming junior roles. Plenty of professionals jump right into managing their own fund.

With regard to sharing in the upside, most respondents said they receive no equity at all. And for those who do share in the equity upside, a large portion said there is a vesting period in place for that equity. The data supports the thought that including a vesting period is becoming standard practice in the hedge fund industry.

As mentioned earlier, last year we found a high level of dissatisfaction with hedge fund compensation packages, and there was little loyalty felt toward the firm. Things have now shifted and movement in the industry is now driven by the firm vs. the individual. While last year we were recommending firms provide healthier compensation packages and move quickly to attract talent, this year the talent opportunity is in picking up top performers displaced from other hedge funds or investment banking jobs.

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