Double your bonus

Do you want to multiply your bonus? If you're sufficiently senior, you may be in with a chance: co-investing is back in vogue.

"If you work for an investment bank, the option to put your own money into the firm's funds goes in cycles," says Alan Johnson, managing director of Wall St. pay consultants Johnson Associates. "In the last year it's become increasingly popular again."

Last month it emerged that Morgan Stanley is allowing employees who earn at least US$500k (261k) to invest part of their bonuses in the firm's hedge funds and private equity funds. Not to be left out, headhunters say Goldman Sachs, JPMorgan, Citigroup, Lehman Brothers and Merrill Lynch are all doing the same.

"It's almost become a standard benefit in a US bank," says Lee Thacker, a consultant at search firm Highland Partners. "I've seen at least five banks offering it in the past few months."

The option to co-invest is typically offered to managing directors and senior vice presidents. Johnson says VPs will occasionally get a look in.

The outbreak of co-investing could be an omen that the market is nearing its peak. Johnson says as much as 90% of top firms allowed senior staff to co-invest back in 2000, but schemes' prevalence dropped to as little as 20% when markets bottomed out two years later.

So is it wise to co-invest if the opportunity arises? Yes - probably: the potential for upside is large, with annual returns reaching as much as 40-60%, although the average is more like 20%.

However, there's nothing to say you won't lose money. And if you don't lose money, co-investing may limit your options for moving on: "Hiring banks will buy out restricted stock," says Thacker. "They are not always able to replace money that's been co-invested." Which is undoubtedly what banks had in mind when they re-introduced the schemes in the current tight market.