Hedge Fund Pay Up, Bonuses Down

A pair of new reports on hedge fund compensation offers conflicting stories about how much the average hedgie will get paid this year.

Glocap Search says hedge fund employees will make slightly more this year than last year, and those that work for firms that have done well this year won’t be making too much less than they did in 2007. But compensation consultancy Johnson Associates says bonuses at hedge funds, which often account for much of an employee’s total salary, could be way down this year.

The Glocap survey shows that hedge funds that have done better than average this year will have average total compensation about 2% higher than last year. That may not seem like much, but it means employees at such funds will only be making 5.3% less than they did two years ago, before the credit crisis pushed many hedge funds to the brink, and many others over it.

Employees of average or below average hedge funds will get a bigger pay increase this year, averaging about 7%, but took a bigger cut last year, leaving them 11% below 2007 levels.

While Glocap says total compensation will be up, Johnson says bonuses could drop by as much as one-fifth. While investment bankers may get a year-end check that’s 40% larger than last year’s, Johnson says asset management firm and hedge fund employees will likely see their bonuses cut by 15% to 20%, The Wall Street Journal reports.

Others in the alternative investments world will do even worse. Private equity firm employees will see between 20% and 25% less, while those working for prime brokerages will get between 25% and 30% less.

Comments

[Mad Hedge F...:]

ihn The hedge fund industry is still emerging from the ashes of 2008, but will inevitably grab a larger share of the investing public’s assets. Low interest rates and hero status made it way too easy for inexperienced, untested, and sometimes unscrupulous managers to raise new funds that charged management fees as high as 3%, with a 50% performance bonus. Behind every “liar loan” was a bond manager happy to soak it up through securitized Fannie Mae (FNM), Freddie Mac (FRE), or bank debt, shorting Treasuries against them, and then leveraging the 40 basis point spread 50 times to generate a highly marketable 20% annual gross return. Never mind the risks. It was easy money, as long as there were lots of liars- which mortgage brokers herded in by droves, and as long as spreads narrowed-which they did for most of the 21st century. By the beginning of 2008, assets under management soared to $2 trillion. The melt down that followed wiped out large numbers of funds, and raised gates for the survivors, making investors wonder if they would ever get their money back. Total assets plunged to $1 trillion in the blink of an eye through a combination of redemptions and market losses. The new era that is emerging will be populated with humbled and chastened managers offering more disclosure, lower fees, no gates, and thanks to Madoff, oodles of third party oversight. Their portfolios will have less leverage, be invested in more liquid securities, and bring in lower returns. But the new generation will also offer investors battle tested strategies that survived the 100 year flood. Bridgewater, with $37 billion in assets, is now the largest hedge fund, followed by JP Morgan with $36 billion, Paulson & Co. at $27 billion, DE Shaw showing $26 billion, and Soros still at a hefty $24 billion. Long track records and a Gucci cachet will assure that these will prosper. Fees will settle down to the 1%/20% range. For the rest of us this means more capital bunching up in the most successful trades, as we have already seen this year in financials, China, oil, copper, and the multitude of short dollar plays. It is also going to be much harder to get new fund launches off the ground.

Nov 11 12:26 PM