Bad asset management bonus? Blame a hedge fund

Like their friends in investment banking, fund managers have every reason to expect bumper bonuses this year. Industry pundits are not so sure.

Hedge funds are a frequently cited source of pessimism. Recruiters say poor returns and weekly rumours of malfeasance are discouraging long-only managers from defecting to the sector, reducing the need to pay over the odds to retain them.

"The underperformance of hedge funds will inevitably impact fund manager pay," says Carl Sjostrom, a compensation partner at KPMG in London. "It may mean that bonuses are reduced and more money is returned to shareholders instead," he says.

A fund management specialist at a major international search firm in London is similarly bearish. "This year we've seen the market go sideways and the threat of losing people to hedge funds is subsiding. Bonuses may be good, but they're unlikely to be any better than in 2005."

The head of fund management search at a rival international firm said fund management bosses are more interested in reinvesting money than in handing out large bonuses. "This time last year the talk was all about compensation. This year it's about what to with the business next year."

Cautious pay projections come despite healthy profits at several groups. UBS Asset Management saw profits rise to a quarterly high in the three months to September 30. Net profits rose 76% in asset management division of ABN Amro during the first nine months of this year, and F&C Asset Management saw first half profits more than triple.

Chris Manfield, head of the European Asset Management practice at search firm Whitney Group in London, says pessimists are erring on the side of caution. "Results have been absolutely amazing, profits are up everywhere. A lot of people will be paid to reflect that."

A senior equities fund manager managing institutional money for a US investment bank in London can expect a base salary of between 120,000 (€176,000) and 140,000, plus a bonus of 100%, says Manfield. Managers of higher margin retail funds can expect a total package of 400,000 to 500,000.