Hedge fund pay is up, but there were plenty of losers in 2014
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.
Plenty of people have the entire package and yet fail to earn interviews at Goldman Sachs and J.P. Morgan. There are several resume tips that can help your chances at either bank.
We have a research note from banking analysts at Barclays. They’re optimistic, sort of.
Former Pimco boss Bill Gross received a nice golf clap from the industry when he grew assets within his new Janus fund from $12 million to over $1 billion in just two months. But now reports have leaked that as much as $700 million came from one of Gross’s personal financial advisors. You don’t have to be much of a cynic to believe that it’s Gross who wrote the check.
Yesterday, we told you that Standard Chartered was cutting roughly 10% of its Malaysian headcount. That was just the beginning. The bank is now shuttering its stock-trading and underwriting business and plans to cut thousands of jobs.
Decks that banks and other financial firms present to clients are not near as sophisticated as some would assume. In fact, many just brag and play to the egos of clients. Take this presentation, courtesy of private equity firm TPG.
U.S. regulators are looking into whether private equity firms have been bribing foreign officials as part of an offshoot of their probe into the industry’s fee disclosure habits, or lack thereof. The government is looking into whether any firm paid middlemen to help gain foreign business.
U.S. investment banks may have had a lousy fourth quarter, analysts are warning. Advisory and underwriting revenues targets may have been missed.
Buzz Around the Office
An elderly man in California was having some computer problems. His grandson told him it was frozen, so he did what any rational person would do: he brought out the hair dryer and warmed it up.
Quote of the Day: “If we look at someone with a 4.0 GPA but with no extracurricular activities and compare that person to someone with a 3.6 GPA but who has other skills and commitments, to me, that is a more well-rounded candidate,” – Sandra Hurse, global co-head of campus recruiting at Goldman Sachs.