Hedge funds are using higher bonuses to attract risk managers away from traditional investment banks. But during 2006, capital market firms seem to be upping the ante.
According to Risk Talent Associates, total compensation for risk managers in asset management firms rose an average 18 percent during 2005. The increase was driven largely by a 20 percent rise in cash bonuses and a 30 percent rise in non-cash bonuses.
While salaries were relatively even across the alternative investment, traditional asset management and insurance sectors, bonuses were substantially higher at hedge funds and funds of funds, the New York-based recruiter says.
Alternative investment firms are using compensation to lure risk managers away from traditional investment banks. One-third of the respondents to RTA's survey reported changing jobs within the last two years, the majority from investment and commercial banking. "As risk managers make this move from traditional financial services firms to the newer alternative asset managers, they look for a step up in compensation to offset the career risk of moving to a less established firm," observes RTA President Michael Woodrow.
However, Woodrow says, capital markets firms have increased their compensation for risk managers, "so hedge funds will need to dig a bit deeper into their pockets in 2006 to attract or retain top talent."
Traditional asset managers also value strong risk managers, Woodrow notes, saying firms like Barclays Global Investors and Blackrock continue to upgrade their analytics and risk management capabilities.