Hedgies Pay Lower Bonuses
Thursday, January 12, 2012

Hedge fund managers can expect to receive lower year-end bonuses for their performance in 2011, although this decrease will likely be more than offset by rising base salaries, according to a new hedge fund pay report.

The 2012 Hedge Fund Compensation Report revealed that the average reported cash compensation for 2011 was USD311,000, just slightly higher than the previous year's compensation.

The latest report is based on data collected directly from hundreds of hedge fund managers and employees in October and November last year at some of the largest hedge fund firms, including Bank of America Merrill Lynch, Barclays, Citi, Deutsche Bank, HSBC, JP Morgan Chase & Co., RBC, UBP Asset Management, UBS and Wells Fargo Alternative Strategies.

The data shows that last year 45% of hedge fund professionals reported double-digit positive returns for their fund. This year that number dropped to only 16%. The number expecting their funds to be down 10% or less went from 3% to 22%. Only 4% expect their funds' performance to sink by double digits.

"Given the drop in fund performance this year, hedge fund professionals fared pretty well," said David Kochanek, Publisher of HedgeFundCompensationReport.com. "Except for only a few positions in the firm, increases in base pay more than covered the lower bonuses."

Nonetheless, HedgeFundCompensationReport.com says that the decrease in fund performance and bonus payout has some professionals "worried", and employees surveyed cited market conditions and the pace of redemptions as concerns.

The report shows that the hedge fund job market is supporting those concerns. According to the survey, although one-in-four funds is looking for research analysts, there is little other hiring going on in the industry. Partly as a result of this difficult job market, and the uncertain economic outlook more generally, 44% reported that, overall, they are happy with their compensation.

"We've seen this before. When the investment job market tightens, professionals report more satisfaction with their pay. Their focus changes from greener pastures and moves to becoming content with where they are," said Kochanek. "And, among hedge fund employees, there might be good cause for celebration - that is, celebrating that they don't work for one of the big banks."