Alternative investment staff in big demand in US - TMP report
Start-ups and established players are hiring portfolio managers, analysts, due diligence professionals and senior administrative staff at an unprecedented pace, said Michael Castine, managing partner at TMP's offices in Stamford, Connecticut.
A "significant and relatively recent infusion of institutional assets into funds of hedge funds" has boosted demand for experienced professionals, but the proliferation of such organisations in markets that are immature has led to widespread variation in compensation, said TMP.
The search firm asked more than 75 fund-of-hedge fund organisations in the US to complete a compensation questionnaire and received a response from some 24% of them. It targeted multimanager firms that primarily invest in hedge funds rather than those that invest in private equity funds because, though structurally similar, the skill sets involved are quite different, it said.
Respondents included many of the best-known names in the industry, according to TMP. Half of the respondents manage more than $1bn and collectively they control more than $26bn in fund-of-hedge fund assets.
Most were independent/private partnerships. But the group also included affiliates of commercial and investment banks as well as privately held affiliates of diversified money management firms.
The compensation structure that emerged resembled that of a typical money management firm more than a hedge fund, said TMP. More often than not, executives receive a base salary and an annual cash bonus.
Long-term compensation tends to be in the form of an equity interest in privately held firms - often with periodic distributions from profits - or significant equity in the parent of publicly held firms.
Among senior-level positions such as CEO,CFO,CAO,CIO and investment manager/senior analyst, 63% receive some form of equity compensation. But among analysts and heads of due diligence, sales and client service, only 27% receive equity.
TMP found a great deal of variability in cash remuneration from firm to firm. In the CEO/President role, total annual cash compensation ranged from just over $250,000 to $4m.
"Bonus awards in the fund-of-hedge funds business appear to be somewhat subjective, as opposed to formulaic," said TMP. Bonuses appear to rely on a combination of the profitability of the firm, the individual's profitability, management discretion or some combination of the three.
None of the firms relied exclusively on an individual's profitability to determine their bonuses.
CEOs were the highest paid professionals with an average cash compensation package of more than $1.25m. Two-thirds of the respondents said their CEOs had anywhere from 33% to 100% of an ownership stake in the firm.
There was a significant pay differential between CEOs of large firms and small ones. The total average annual cash compensation at firms with more than $1bn in fund-of-hedge funds assets under management was $1.68m, while the same figure for firms with less than $1bn in assets was $814,000.
At CFO/Controller level, average annual cash compensation was $335,000, making them the highest-paid administrative personnel covered by the survey. Just over half of the firms that employed a senior financial executive gave them equity in the firm.
Chief Adminstrative Officers (CAOs) were also well compensated, with an average annual cash package of more than $250,000, and significant equity participation for half the cases. However, only one-third of the responding firms indicated they had a CAO.
Chief Investment Officers (CIOs) ranked second to the CEO in compensation with $722,000 on average, and three-quarters of them received significant equity on top. But only 10 of the firms indicated having a CIO, "which suggests to us that in many cases, CEO/Presidents consider themselves to be the primary investment decision maker," said TMP.
Investment managers and senior analysts - considered together due to similarity of background and role - earn an annual average of $320,000 in cash and nearly all enjoy a significant equity interest in their firms.
Among analysts the high and low earners were far off the median, but average annual cash compensation was clustered between $130,000 and $160,000. Only two of the responding firms said they gave equity to analysts.
Only a handful of firms provided data for a head of due-diligence, suggesting that the industry does not widely accept a need for one, said TMP. Those firms that did employ such senior-level executives paid them on average $187,000.
Top sales executives had an average annual base-plus-bonus package of more than $440,000.
Seven of the responding firms employ heads of client services, with an average annual compensation package of $170,000. But only two firms also award equity to their client service head.
Professional Compensation At U.S Funds of Hedge Funds
A Special Report From TMP Worldwide Executive Search, prepared by Greg
Joslyn, director of research projects Tel. 212.351.7256
