Hedge fund manager pay drops by up to 30%
Hedge fund managers might still be rich, but they suffered far more than their investors this year, as their total compensation fell by up to 30%.
The industry lost 4.7% on its investments this year to 30 September, according to Hedge Fund Research. Over the 12 months to September they are up a modest 0.4%.
But a report on industry compensation by US recruitment firm Glocap found the total compensation for hedge fund employees overall dropped about 10% over the past 12 months, while for senior managers the falls extended to 30%.
The report comes at a time various regulators, Europe’s Alternative Investment Fund Managers Directive and politicians all have hedge fund pay in their sights.
However, Glocap’s report conducted jointly with HFR uncovers a wide gap in compensation depending on role, seniority, fund size and performance.
The industry’s growth in assets – hitting new highs beyond $2trn in the first half of 2011 – meant management fees based on assets could support revenue and pay in the first half.
But a 6.2% performance slump in the third quarter – one of the industry’s worst quarterly periods on record – halted performance fees for many funds. And the size of many managers remuneration relies largely on this levy, typically 20% of fresh profits.
Adam Zoia, chief executive of Glocap, said: “Compensation is primarily driven by performance, fund size and functional role, in that order. That is, stronger performing funds pay more; large funds pay more for a given level of performance, and investment professional compensation is more volatile than back office compensation, particularly at the senior level.”
Kenneth Heinz, president of HFR, added: “Compensation policies and practices have become a focal point of a hedge fund’s effort to attract both institutional investors and talented investment professionals. A fund’s ability to effectively manage these policies and incentives constitutes a crucial component of success and stability for both investors and employees.”
Declines in compensation were not evenly distributed across roles and fund types.
Mid- to junior-level investment professionals saw year on year changes in compensation from increases of 7%, to 10% falls. They did better, though, than their senior colleagues with more ability to influence fund performance and higher proportions of income linked to it. Compensation for senior managers ranged from flat to 30% down.
Marketing, client service, accounting and compliance generally experienced flat to modest increases.