It is not what you do, it is where you do it, at least when it comes to fixed income. That is one of the many findings by a joint study on asset management compensation conducted by Greenwich Associates and Johnson Associates.
The researchers discovered that institutional fixed-income professionals make more working for hedge funds than traditional institutional asset management organizations. Last year the average annual compensation for hedge fund fixed-income professionals was in the neighborhood of $1 million versus $420,000 at traditional firms. If you are in equities, the pay is about the same.
Fixed Income Head Traders Earned More Than Equity Head Traders
This is not true if you run the trading room. The study found that "fixed-income head traders earned an average $850,000 in 2010, double the total compensation of equity head traders."
In any event, the grass does appear to be greener on the buy-side. Both hedge funds and traditional asset management firms pay equity professionals (including portfolio managers, traders and analysts) more than their fixed-income counterparts. The gap widened slightly from 2009.
But Equity Portfolio Managers Make More Than Fixed Income Portfolio Managers
Equity portfolio managers averaging $785,000 versus $480,000 in fixed income. The story was pretty much the same for traders. Equity earned about $315,000 last year compared to $300,000 for fix-income traders.
"Equity analysts earned about 50 percent more than fixed-income analysts last year, with equity analysts taking home an average $435,000 compared to $290,000 in annual compensation for fixed-income analysts," the study found.
Research analysts who work for mutual funds and pension generally receive roughly 5 to 10 percent more money than their peers who work for brokerage firms that sell securities. They also are thought to have better career opportunities.
Interviews with more than 1,000 financial professionals in equity and fixed-income investor groups at investment management firms, mutual funds, hedge funds, banks, insurance companies, government agencies and pension and endowments also discovered that salaries are gaining favor over bonuses, which may be another way of saying bonuses aren't what they used to be thanks to greater pressure from regulators.
"Very large asset managers have gradually started to adjust the pay mix for senior
management," Greenwich Associates Institutional analyst Kevin Kozlowski tells eFinancialCareers.
For instance, after widening in 2009, the gap in total compensation between chief investment officers and other investment professionals seems to have leveled off in 2010. Average 2010 total compensation for chief investment officers in equities was approximately $1.1 million.
For fixed-income portfolio managers, salary makes up a larger portion of cash compensation. Last year, bonuses for fixed-income professionals came to about 55 percent for traders and portfolio managers.
"In 2010, bonuses accounted for approximately 65 percent of cash compensation among equity portfolio managers and 55 to 60 percent among equity analysts and directors of research, with the remainder in salary," according to the study.
Again, head traders were the exception. Bonus made up roughly 75 to 80 percent of their compensation.
Still, 'tis the season to mind those belt holes. Traditional asset managers plan to pay the same or less - as much as 5 percent less - than 2010 levels for equity specialist and flat to 5 percent higher in fixed-income. As befits its industry, hedge fund compensation is all over the map but, in general, pay will be based on company performance.
In any case, paychecks are expected to be at least as fat as last year and maybe even fatter. That's because assets under management swelled in the market boom in the first half of 2011. "Many hedge funds climbed back toward and even cleared previous high water marks," the study says.
"The industry is shrinking mainly on the sell side, and that means people are being asked to do more work," Kozlowski says.
Of course, everyone knows that a lot can (and did) happen over the summer. So, don't run to the bank with any raise that is not in your bank account. That said, the news could be worse. Just be glad that you are not working for an investment or commercial bank. Industry projections expect year-to-year compensation to fall as much as 30 percent or more. Ouch!