Managing retirement funds is pretty much the same no matter where you do it, but your compensation isn’t. Apparently, size trumps performance.
In the middle of 2011, DHR International, an executive search firm based in Chicago, polled a total of 175 public, corporate and union pension funds, representing a total market value of $2.7 trillion. Assets under management range from $600 million to $224 billion, with the median fund size of $12.5 billion, and 80 percent reporting assets under management of $20 billion.
It was a period that saw higher turnover at funds because of retirements and job swapping at other funds in the wake of the traumatic downturn in 2008-09 as funds cut unproductive staff and provided new incentives for managers who were able to weather the storm.
The most significant finding shows that annual compensation increases based upon a fund’s assets under management, regardless of investment performance.
In general, it found that corporations paid their chief investment officers more than public and union pension plans. No surprise there. Sixty-five percent of corporate plans have median base salaries ranging from $250,000 to $350,000 and total compensation of $500,000 to $800,000. The lowest figure was $280,000 and the highest was $2.4 million, usually for managers who run money in house at very large plans.
Public and union plans pay about the same. For the most part, you can expect between $150,000 to $250,000. Total compensation is higher: between $225,000 to $350,000. That said, some pay as low as $130,000 and as high as $1 million. Public plans tend to be more generous: a greater percentage of CIOs at public plans took home more than $500,000 per year than Union CIOs.
But the real eye-opener is what that money buys. On average, all three pension fund types lost more than 19 percent in fiscal 2009: a year when the S&P 500's climbed 23 percent, posting its best annual gain since 2003.
Funds with more than $20 billion in assets were the worst performers in 2009.
“A handful of very large funds pulled the median performance down,” explains James Schroeder, executive vice president of the privately held firm. Another factor is that many funds had pulled out of equities after a disastrous 2008 and failed to get in on the rally that began in March 2009 because, Schroeder notes, funds do not change course quickly.
“Down performance is not a reason to exit managers,” he tells eFinancialCareers, “unless there is regulatory turbulence with the asset manager.”
The best performance came for middle-sized funds. Those with between $5 billion and $20 billion fared better than both larger and smaller funds.
During the past few years, public plans did better than those of union and corporates, despite corporates' greater incentives through pay-for-performance.
Once the market turned in 2010, the survey found there was no clear correlation in performance based on fund size. All three fund types did better in 2011, climbing 21.2 percent on average.
“In the long run, greater assets under management may well result in greater opportunities at home and overseas, and larger funds will gain increased prominence,” says Schroeder.