Hedge fund pay is up, but there were plenty of losers in 2014

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See if you can find some logic here. The average hedge fund returned just 2% last year, the worst since 2011. The majority of hedge funds have lost to the S&P for six straight years. A near-record number of hedge funds closed in 2014. A new report suggests that even more will shutter in 2015. And pay is up.

Base pay and bonuses both increased in 2014, with average take-home compensation finishing just shy of $370,000, according to new research from HedgeFundCompensationReport.com, which shared its results with Business Insider.

“We saw a reduction in the correlation between fund performance and bonus levels,” David Kochanek of HedgeFundCompensationReport.com told BI.

Kochanek didn’t get into the thinking behind the lack of correlation, but there are two obvious reasons. One, institutional and private investors continue to pump billions into hedge funds, despite some public decries from pension funds that they are done with the industry. Fees are clearly making up for the lack of performance incentives.

Two, average pay is up but only due to the dominance of the top performers. Big-name hedge funds are swallowing up fresh assets, leaving managers at smaller firms fighting for the scraps. Some hedge fund employees are making well north of seven-figures, while the majority are likely earning far less than the aforementioned average.

Quite simply, there are fewer winners, and the separation between top firms and middling ones has stretched drastically. “It has become increasingly difficult for managers sub-$200 million in assets to raise money, even if they have a very high quality product, because most of the money has been flowing into hedge funds with the strongest brand and the most assets under management,” Don Steinbrugge, founder of hedge fund research firm Agecroft, told BuzzFeed News.

The hedge fund industry is at a strange crossroads, where, with assets under management crossing a record $3 trillion in 2014, it’s never been healthier. Yet, the ground in incredibly unfertile for newcomers and investors are, ever so slowly, becoming frustrated with the lack of returns. But, as of today, they’re not taking their money out of the industry – they’re just giving it to someone with a bigger name.

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