Hedge funds remain more willing than most types of financial services organisations to pay large bonuses to top performing staff, but compensation has remained relatively flat for the majority of people working in the sector. What’s more, recruitment requirements are getting tougher.
Headhunters Glocap have produced their annual report into hedge fund pay expectations. It’s been reported relatively extensively elsewhere, but we’ve attained a copy of the report and, away from the headline-grabbing figure of a 15% uplift in bonuses for portfolio managers at large, top performing funds, pay for hedge fund professionals has either remained flat or increased by single digit percentile figures.
The figures outlined below are global, with something of a bias towards the US, but they’re accurate for the London market and most large hedge funds are edging up pay and bonuses this year, says Tim Wright, partner and head of asset management remuneration at PwC.
“In the last two months alone, performance has been boosted in most large hedge funds, together with an increase in assets under management, so we expect pay to increase slightly this year,” he says. “What’s more, the majority of these bonuses will be in cash, but most hedge funds will expect some level of deferral to ensure longer term performance.”
Generally, though, pay remains off the highs of 2010. Base salaries are flat year-on-year across all investment functions within hedge funds and only bonuses have headed northwards. A portfolio manager in a top performing fund can now expect, on average, $4.7m as a bonus, which is a 15% increase on last year. However, the majority of positions have seen only a slight rise, or even decreased on the previous year.
Those working in research functions at a top performing fund, for example, are expected to earn an average of $432k this year, or an uplift of 3.3% on 2011 and bonuses have increased by 4.9%, to $302k. However, at a poor performing fund – those with an average return on revenue of 0.26% - average bonuses were down nearly 9%, to $123k, and total pay slipped by 5% year-on-year.
Mid- to senior level traders have seen a significant uplift in pay this year though. At the top end, bonuses have swelled by an average of 24.4%, to $280k, which is higher than the mean figure in 2010. At the mid-level, bonuses have increased by 20% year on year to $120k, but this figure is still off the 2010 high of $135k.
Interestingly, hedge funds still pay their junior staff more than most other areas of the financial sector. According to Glocap’s figures, a junior investment professional at a hedge fund earned an average of $215k this year, versus $205k as an associate in private equity and $170k as a third-year investment banking analyst.
Hiring has been constrained within the hedge fund industry this year, particularly in Europe and the US, says Anthony Keizner, managing director of Glocap, with some funds instead focusing on regions like Asia and the Middle East. What’s more, like investment banking, the recruitment process is becoming more onerous.
“Most candidates not only have to meet HR and the hiring manager, but also nearly all the members of the investment team typically before an offer is extended,” he says. “Candidates are also asked to work on projects which demand 20+ hours of work. Many of these entail making a presentation to the investment committee of an analysis on a stock or bond.”
Below are the figures expected to be paid this year, which Glocap has given to us exclusively. This is a small section of the overall compensation report, which is available to purchase here.