An expected modest pickup in year-end payouts for hedge fund professionals will recoup only a small portion of last year's steep decline, a new report says.
Investment professionals in top-performing funds will receive bonuses averaging $652,000, according to the analysis by hedge fund recruiter Glocap Search LLC and research firm HedgeWorld. While 3 percent above the $635,000 mean for that group in 2008, it's far below the 2007 figure, $708,000.
Pros whose funds performed less well could see a bigger bump - 12 percent (to $275,000 from $245,000 in 2008) for the bottom-performing group and 10 percent (to $380,000 from $345,000) for the middle of the pack, according to the Globap/HedgeWorld report. But those individuals' pay took a bigger beating from 2007 to 2008 than did the top-performing group. Base salaries for all three groups were little changed, in a range of $213,000 - 230,000.
The figures reflect investment professionals with five to nine years' experience at funds with $3 - 10 billion under management. They were estimated as of Oct. 1 based on information provided by Glocap candidates, "actual placement data" from search business, and surveys by the firm's recruiters.
More Upbeat Than Johnson Associates Forecast
The report is more upbeat than the outlook for hedge funds within Johnson Associates' financial services bonus forecast issued last week. That influential Wall Street compensation consulting firm looks for hedge fund incentive pay to shrink a further 15 - 20 percent this year after a double-digit decline in 2008. Johnson acknowledges the downward pay trend it sees "may not align with expectations" - a recipe for high turnover among fund employees disappointed with their amounts.
Differing forecasts might stem in part from Johnson's focus on a limited circle of about 20 of the largest banks and asset management firms, including alternative investments divisions of institutions such as Goldman Sachs.
Glocap, for its part, explains that this year's robust returns - the Credit Suisse/Tremont Hedge Fund Index gained 15 percent through the end of September - will likely outweigh the impact of high-water marks on bonuses. "The single strongest driver of hedge fund compensation continues to be fund performance, and this year almost all strategies of hedge funds have performed well," says Adam Zoia, the firm's chief executive.
Zoia says owners of hedge funds "heavily subsidized" their employees' pay in 2008 in order to keep teams together and maintain morale. Although owners gave "some initial thought" to restraining this year's payouts to recoup those subsidies, most have decided to view last year as "one-off subsidy that will not be 'paid back' by employees," he says.