Salary Survey: Largest Hedge Funds Cut Pay

Fund managers usually see hedge funds as alluring employers. They pay well and provide a chance to work with cutting edge investment techniques. But a new salary survey suggests pay at large funds has fallen.

Managers at funds with more than $1 billion under management have been hit hardest. Average base pay at $1 billion plus funds fell from $133,000 in 2002, to $128,000 in 2003.

Figures are drawn from the 2003 Hedge Fund Compensation Report produced by Glocap Search LLC, an executive search firm, Institutional Investor News, and Tass Research, a hedge fund research specialist. The report focuses on US funds.

At smaller funds with less than $99 million under management, and with between $100 million and $999 million under management, the report says average base salaries rose in 2003, to $119 million and $122 million respectively.

Claude Schwab, managing director of Glocap Search, forecast that downward pressure on salaries will become more pervasive in 2004: 'Funds with over $1 billion under management are the standard setters. These are the famous funds that can reduce salaries and get away with it. Now they have reduced base pay, it is likely that pressure on salaries will increase across the industry next year.'

Bonuses have fallen more dramatically. At funds with over $1 billion under management, the report says average bonuses fell from $520,000 in 2001 to $315,000 in 2002. This was matched by a smaller reduction in average bonuses at funds with less than $99 million under management: from $110,000 in 2002 to $90,000 in 2002.

At funds with between $100 million and $999 million under management, average bonuses actually rose: from $125 million in 2001 to $190 million in 2002. Bonus figures for 2003 are not yet available.

Schwab explained the discrepancy in terms of hedge funds' strategy: 'Two strategies did well in 2002: global macro and short biased funds. Very few $1 billion plus funds were following either of them. Bonuses were low as a result.'

The Compensation Report also found a strong correlation between pay and experience. Schwab said: 'The number one driver for pay is years of relevant experience. It is not related to seniority, but performance. If you have survived in a hedge fund for four or five years, you will have made the fund a lot of money, otherwise you would have been out the door.'