As the economy slowly turns the corner, the hedge fund industry charges ahead with bonuses driving double-digit hedge fund compensation gains
SAN DIEGO, CA, January 12, 2011 — The latest report on hedge fund compensation revealed that hedge fund managers anticipate a 10 percent increase in total annual compensation, fueled by expectations of big year-end bonuses. The annual industry report is based on data collected directly from hundreds of hedge fund managers and employees.
Although the broader economy is recovering at a much slower rate, the hedge fund industry roared back in 2010 and 53 percent expect a raise in total compensation. The average projected pay for 2010 is $326,000 — an increase over last year’s number of just under $300,000 USD.
Hedge fund professionals report that they expect their funds to significantly outperform 2009 returns. Last year 8 percent said they believed their funds performance would be down 25 percent or more over the previous year — this year, not a single respondent expects that level of decline. In fact, only 3 percent expect negative returns and nearly half expect double-digit return levels.
Along with the improved performance, these professionals anticipate much higher bonuses as a result. Top earners expect 80 percent of their 2010 cash compensation to come from bonus payments.
“There has been quite a bit of press regarding bonus payouts lately, however, they are by no means a sure thing. Fewer than one in five hedge fund employees have any portion of their bonus guaranteed,” says David Kochanek, publisher of HedgeFundCompensationReport.com. “To increase the ‘skin in the game’ factor that investors are looking for, 12 percent also reported that they were required to invest some of their bonus back into the fund.”
A consistent finding in the hedge fund compensation report is that, the higher the overall earnings, the more bonus matters. Without exception, each pay range tier expects a larger percentage of its total income to come from bonus payouts.
The link between fund performance and expected bonus was evident, but performance was by no means the only determinant. Those who expected their funds to perform positively but in only single digits, anticipated an average bonus of $214,000, more than those funds that provided double digit returns.
“Larger funds with a small number of staff have a decided advantage over those in similar sized groups in the recruiting process,” said Kochanek. “These funds can demonstrate a clear business case for upside to candidates, giving these efficient teams a competitive edge in the war on talent.”
The report also shows that the highest level positions in a hedge fund take smaller cash compensation in return for equity. Most of the difference is in bonus compensation, especially for Portfolio Managers. At the analyst level, this does not hold true; analysts with equity enjoy much higher base and bonus levels.
About The Report
The 2011 Hedge Fund Compensation Report is based on compensation data collected directly from hundreds of portfolio managers and employees from firms, both large and small, during October and November 2010. Learn more about hedge fund compensation at the report site.
The Report has grown to become the most comprehensive benchmark for hedge fund compensation practices in the industry. Respondents participating over the years represent some of the largest and most recognized hedge fund firms, including: Bank of America Merrill Lynch, Bank of New York Mellon, Barclays Global Investors, Black River, Brightpoint Capital, Carlson, Citadel, Citigroup, Deutsche Bank, Fountain Advisors, HSBC, Kellogg Capital Group, La Fayette, Lansdowne Partners, Morgan Stanley, Oak Street Capital Management, Peak 6, and UBS.
HedgeFundCompensationReport.com is a division of Job Search Digest, a web-based career service catering to investment professionals since 2002. Annually, the firm collects compensation data directly from hundreds of hedge fund managers, principals and employees from firms both large and small. The firm also publishes a blog on hedge fund careers