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Bring on the risk managers on the 1m salaries

In the bold new risk management landscape, some senior risk managers are allegedly being paid abnormally well. A former head of risk at one large hedge fund- turned prop trader at a bank, says there are senior risk managers out there who are earning 1m. Most of them are apparently working in hedge funds.

As a former risk manager himself, he personally thinks heads of risk should be paid in the region of 1m base as a matter of course: “At the end of the day, it was penny-pinching on risk management that led us into this debacle. There are senior managers who still don’t get that.”

Lloyd Blankfein may sympathise. Last week Lloyd said risk managers must be elevated so that they’re on a par with traders. He neglected to say whether this applied to risk managers’ pay, however.

There are distinct signs that some hedge fund risk managers are doing well for themselves.

Wassim Rehman, head of risk controls at Marshall Wace, is retiring aged 28. And Bloomberg recently ran an article feting the risk systems at Brevan Howard and the role played by its chief risk officer Aron Landy. Landy apparently has the power to dump traders who don’t listen to his suggestions and has even told Alan Howard to cut positions.

However, Adrian Marples, a consultant at risk recruitment firm GRS, says it’s a case of severely wishful thinking to assume that some risk managers are earning 1m, even at the few remaining successful hedge funds.

“Influence has increased, responsibility has increased, but at the end of the day, risk managers are not revenue generators and are not paid to be,” he says.

Comments (10)

  1. Of course, risk guys need to be better paid, so that the good ones don’t try to hop into trading, and most of those left are those not able to make the cut. But to blame the recent debacle on lack of good people in risk is wrong. This credit thing was an ideological failure, about how we have abolished the boom-bust cycle, how house prices can’t fall too much, how the past economic history is irrelevant because times have changed and we are now smarter…

  2. Just heard UBS is still in the process of kicking out risk managers! have these people not learnt anything?

  3. Totally agree with “observer”. This crisis is just one of many that litter economic history (read Manias Panics and Crashes…), and they will continue to happen as long as we are all human, and have human emotions: jealously, greed, fear, hope. Further, to quote the eminent economist C A E Goodhart, in his very good book – money Information and uncertainty: ‘Time is the ultimate contraint on mortals. Lack of time contributes also to limited information”….and forces us to make decision under uncertainty. We will never be perfectly informed. Economics is not a hard science, no matter how hard it tries to be one.

  4. First you had some Credit Derivative traders in 2002-3 earning 1m+, now you will have some risk managers in 2009-10 earning 1m+. Funny how things move in cycles.

  5. Anyone been looking at Goldman’s recent VaR numbers that got them the bumper profits. They’ve been very naughty.

  6. Isn’t this the problem with banking today? An unhealthy obsession with money. It is true that a lot of bankers are obsessed with money, thats why we work these silly antisocial ungodly hours. But even this obsession becomes unhealthy when Bankers start switching roles for the sake of a better compensation package. A variety of roles and functions should operate in synchrony – the essence of a well-formed and functional organisation. One’s skill set may be suited to being a risk manager, another’s may be suitable as a trader, quant or back-office researcher. But when compensation packages fluctuate dramatically as a result of supply and demand, then tomorrow, traders, quant developer and researchers will want to be the next big thing.
    Lets face it, not a lot has been learned from the current crisis, there is still a prevalent ‘get-rich-quick’ mentality which has to be purged from the Banking and Finance sector.

  7. Is risk manager the new trader?

  8. Any salary survey for risk professionals?

  9. Read Risk Management in Financial Institutions Journal for vol 2.2 116-120 – the paper by Miriam Garnier “Black holes in risk governance”. If this is what a senior risk office /CRO is required to understand, then 1 million is practical and realistic and this combined with the Agency challenge means these wages are deserved and the risk manager will always be seen as a hand break. Risk Managers are not the investment manager or trader and never will be. Sadly I see a confusion here been leveraged pay on bonuses to performance and fixed pay which is what the CRO should be on. The risk managers wages look large because the pay is fixed scale. The Risk Officer returns are not to be geared to risk appetite and risk quantum or excess profitablity. Much more a deep thinker and reviewer.

  10. At banks I’ve found that heads of risk management (where this actually means risk monitoring, reporting & control) are generally ex-trading management who have either i) messed up big time and are effectively suspended until their replacement messes up, or ii) have ambitions to expand into new areas of business that management doesn’t trust them with until they have a better idea of what can go wrong.

    ‘Support’ function package limits are suspended while these people run risk. This is probably a good thing.

    The other type of people who get to run risk are there to ingratiate themselves with trading management, and move from risk into trading/sales, often leaving behind a mess – and they’re usually not too hot at the trading/sales.

    Perhaps the 1m risk managers are not risk controllers, but actually manage risk – which is a trading management function. If so I’m not at all surprised at the level of pay.

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