Average pay for risk managers working in the asset management sector is on the way up, largely thanks to increased demand for risk managers working in hedge funds.
This is the finding of a study of pay for more than 100 mid- to senior-level risk executives by Risk Talent Associates, a New York City executive search firm. 80% of the respondents were US-based, with the rest working in Europe.
Total compensation for risk managers in asset management firms grew an average of 15% between 2004 and 2005, the survey found. According to Michael Woodrow, president of Risk Talent Associates, plenty of risk managers in the asset management sector are now on packages of $500,000, which he described as 'markedly up' from a few years ago.
The survey found risk managers working in hedge funds earn plenty more than their counterparts at traditional asset managers. For example, total compensation for a vice president in risk management at a hedge fund is between $248,000 and $303,000. This compares to $232,000 to $268,000 in a traditional asset manager.
Heads of risk at hedge funds can earn over $1 million, whereas pay for senior risk staff at traditional asset managers is typically lower than $820,000. Cash bonuses can be 70% higher at hedge funds, the survey found. Peter Arian, a consultant at Analytic Recruiting, another Wall Street recruiter, says these figures are roughly correct, although plenty of risk managers in traditional firms are paid a lot less.
Woodrow says it makes sense that risk officers in hedge funds earn more: 'The risks at a hedge fund are considerably greater. These are absolute return funds that aim to make money whatever the market. They need to take more risks to do that.'
Woodrow says hedge funds are hiring more risk officers than previously. It's a sentiment repeated by other risk recruiters in New York and Europe. 'As hedge funds expand, they need a larger risk hub,' says Paul Ferrari at Shepherd Little in London. 'Hedge funds are looking to make their risk management processes more formal,' says James Yeo at Huxley Finance in London. 'There are quite a few jobs in this area.'
Making the move
If you're a risk manager looking to shift into a hedge fund, you're likely to need good quant skills, and perhaps a quantitative PhD. 'It depends upon the strategy,' says Arian. 'If it's a long short equity hedge fund it's less quantitative than if it's a credit derivatives fund or one with a capital structure arbitrage strategy.'
You'll also need to be client friendly. Hedge funds typically use their risk people to win over new investors, say recruiters. 'You'll sit in front of every large client at every pitch they make,' warns Woodrow. 'You need to understand the markets and the issues.'
Most risk managers at hedge funds have an investment banking background. Arian says risk managers on prop desks are particularly suitable.
Known departures of risk managers to work in hedge funds include Julian Shaw, head of market risk at Barclays Capital, who left to work at hedge fund Permal Investment Management last year.