Who says income distribution is skewed toward the top? In hedge funds last year, most employees made more money than they did in 2009, with some junior professionals getting the biggest raises, while the chief executives and chief investment professionals’ compensation didn’t match the big gains of 2009.
The median compensation package for investment professionals was 23% more in 2010 than in 2009, at about $400,000. Average pay, however, was about flat, at $805,063. That’s one indication that most of the gains came from the bottom, not the top. Bonuses drove the higher compensation packages, with base salaries remaining relatively stable.
Junior staffers saw bigger jumps in total compensation and bonuses than their senior counterparts by some measures—a sign that hedge funds are trying to retain up-and-coming talent. Hedge funds also paid up big in the areas of compliance, marketing and risk management, as the postcrash need for more investors and more cautious trading continued to gain momentum last year.
“Compensation is back, and it’s better than ever for the few firms that are generating alpha in a real way,” says Steven Diamond, founder of executive search firm S. Diamond Group.
Among investment professionals, salaries increased the most for junior portfolio managers, who had a 59% (or about $200,000) rise in total compensation on average. The total compensation of senior portfolio managers, on average, dropped by about $30,000 to $990,041, a 3% decrease.
Junior traders also made about $40,000 more on average last year, compared with 2009, a 24.6% jump. Meanwhile, their senior counterparts made $60,000 less in 2010 than in 2009.
Headhunters say hedge funds are doing more to spread the wealth, reward talented junior staffers for good ideas and retain them. “I’m seeing the largest hedge funds as being very generous, especially with junior folks,” says Roy Cohen, career coach and author of “The Wall Street Professional’s Survival Guide,” a 2010 book that offers advice on navigating a Wall Street job search. “The largest firms have expanded and want to attract the very best talent.”
There are many smart, hard-working two-year analysts coming out of banks like Goldman Sachs or Morgan Stanley who opt for hedge fund or private equity experience prior to (or in lieu of) going to business school, Cohen explains, and the big hedge funds are competing to scoop them up these days.
Comp for both senior and junior analysts rose last year. Senior analysts made $560,005 on average in 2010, compared with $440,041 in 2009. Junior analysts took home an average $244,211 last year, compared with $193,900 in 2009.
Meanwhile, some of the biggest pay hikes were for noninvestment professionals. Hedge funds have been adding to their marketing, investor relations and business development staffs—and paying well for tenured professionals.
Investor relations officers made an average $1,062,598 in 2010, compared with $598,642 in 2009. Business development officers made $949,613 in 2010, compared with $583,385 in 2009. Marketing managers made $1,203,848 in 2010, compared with $723,693 the prior year.
Most of the gains are coming through bonuses, which are increasingly being doled out on a discretionary basis, says Robert Friedland, a founding partner of search firm Essential Human Capital.
“What we’re seeing is that established firms are more inclined to offer base salaries and discretionary bonuses versus commission-incentive compensation,” says Friedland. Discretionary bonuses could be determined by such things as an individual’s role in capturing new assets, improving marketing materials or taking meetings with key decision makers, Friedland explains, as opposed to a bonus solely based on a percentage of new assets raised.
Lisa Baird, a consultant with executive search firm Russell Reynolds Associates, says the demand for sales, marketing and distribution professionals who have relationships with institutions and their consultants will continue to be high.
Risk management professionals also took in a lot more last year, with the average risk-management officer earning $1,320,289 in total compensation in 2010, compared with $801,694 the prior year. Compliance and operations staffers also had big pay increases last year—a clear sign that hedge funds have decided to dedicate more resources to these areas since the financial crisis.
Executive search consultants agree that funds that performed well last year and were successful at raising capital paid their staffers better, while others that just meandered along kept compensation at the same level.
The numbers at the top also indicate a leveling of the playing field. The median hedge fund chief executive made $651,987 last year, compared with $473,162 in 2009, an increase of 37.8%. The median chief investment officer also took home more than $200,000 more in 2010, $797,447 versus $520,526, for a 53.2% increase.
But as measured by the average, CEOs and CIOs actually made less in 2010, with CEOs bringing in $1,502,049, slightly less than their 2009 average of $1,659,553. CIOs made $1,259,861 on average in 2010, while their 2009 average was 29.8% higher at $1,794,076.
The divergence between the mean and median numbers for the most senior hedge fund executives is an indication that the increases in compensation came across the board, instead of just at a few outliers at the top. “Compensation is transcending title. It’s now come down to an issue of function and performance,” says Diamond. That was also the case for the top 25 earners in AR’s Rich List, who made 13% less in 2010 than in 2009: $22.07 billion, compared with $25.33 billion.
Headhunters say compensation has been mixed in 2010. “It’s hard to draw an overall trend. It tends to be dependent on the strategy and the company and their level of profitability,” says Baird. “Some hedge funds are paying bigger bonuses than ever because performance has been great, and others aren’t,” she says. Credit, distressed and macro hedge funds did pretty well last year in terms of compensation and performance, Baird adds.
Ilana Weinstein, founder of executive search firm The IDW Group, agrees. “This is a year where we see great divergence across compensation,” she says. “Overall, if [the hedge funds] were successful in raising money and had decent performance, they definitely paid up over the year prior,” she adds.
Overall, hedge funds returned slightly less last year than they did in 2009. The median number for the AR Composite Index was up 9.15% in 2010, compared with 15.54% in 2009. Hedge funds in AR’s Billion Dollar Club, which tracks those firms with more than $1 billion in assets, managed a total of $1.297 trillion as of January, compared with $1.182 trillion in 2009.
The hedge fund industry has also gone through a significant shakeout since the financial crisis: About 500 hedge funds shut down in the past three years. More than 70% of hedge funds finally met their high-water marks in 2010, according to the AR database, and executive recruiters say these funds are finally paying up for good performance.
But managers are a bit more cautious nowadays, and some aren’t offering contracts to lock in employees or, in some cases, not abiding by those contracts. “There are a lot of handshakes and managers saying, ‘We’ll take care of you, but we’re not going to put it in writing,’ ” says J. Patrick Gorman, co-founder of iFind Group.
“There are people working for smaller hedge funds where the rules have been broken because they’re not doing as well as they thought they’d do,” says Cohen. They are saying, “Even though we had an agreement, we’re not going to honor it. You can either stay here or leave.”
Base salary
Mean | Median | |||
2010 | 2009 | 2010 | 2009 | |
Job Function | ||||
Investment Professionals | $229,859 | $227,322 | $150,000 | $150,000 |
Chief Executive Officer | $571,724 | $570,585 | $200,000 | $200,000 |
Chief Investment Officer | $217,936 | $228,437 | $200,000 | $200,000 |
Senior Analyst | $141,849 | $132,100 | $145,575 | $132,462 |
Junior Analyst | $112,887 | $117,400 | $112,000 | $110,000 |
Senior Portfolio Manager | $377,686 | $377,946 | $175,000 | $156,471 |
Junior Portfolio Manager | $142,333 | $126,478 | $142,500 | $122,500 |
Senior Trader | $170,408 | $151,750 | $150,000 | $150,000 |
Junior Trader | $116,250 | $105,000 | $112,500 | $105,000 |
NonInvestment Professionals | $180,561 | $166,907 | $172,514 | $150,000 |
Chief Compliance Officer | $212,803 | $194,299 | $200,000 | $177,500 |
Legal/General Counsel | $253,333 | $229,545 | $250,000 | $250,000 |
Officer/Finance Director | $204,767 | $191,032 | $200,000 | $175,000 |
Financial Officer/Manager | $161,000 | $151,000 | $150,000 | $150,000 |
Chief Operating Officer | $197,938 | $188,011 | $198,180 | $175,000 |
Operations Officer | $148,583 | $127,493 | $140,000 | $125,000 |
Chief Technology Officer | $196,000 | $183,000 | $175,000 | $150,000 |
IT Professional | $121,250 | $127,500 | $115,000 | $127,500 |
Investor Relations Officer | $173,863 | $160,190 | $150,000 | $150,000 |
Business Development Officer | $174,479 | $168,483 | $167,500 | $160,000 |
Risk Management Officer | $251,659 | $232,433 | $240,000 | $238,382 |
Risk Manager | $141,907 | $152,326 | $146,102 | $152,500 |
Marketing Director/Manager | $177,994 | $162,404 | $154,570 | $156,471 |
Marketing Associate | $103,531 | $101,891 | $80,000 | $80,000 |
Controller | $125,084 | $128,739 | $100,000 | $100,000 |
Job title | ||||
Associate | $103,238 | $101,898 | $100,000 | $110,000 |
Assistant/Associate VP | $87,345 | $80,729 | $85,000 | $82,500 |
Vice President | $157,487 | $146,493 | $150,000 | $140,000 |
Senior Vice President | $175,621 | $171,985 | $150,000 | $150,000 |
Director | $437,882 | $440,669 | $157,500 | $150,000 |
Managing Director | $219,443 | $198,340 | $200,000 | $168,409 |
Managing Partner | $479,266 | $509,826 | $200,000 | $200,000 |
President | $322,266 | $315,850 | $190,000 | $175,000 |
Chairman | $2,643,805 | $2,640,306 | $257,609 | $250,611 |
Not Applicable | $173,405 | $164,480 | $152,285 | $150,000 |
Other titles | $161,207 | $152,747 | $150,000 | $150,000 |
Total bonus
Mean | Median | |||
2010 | 2009 | 2010 | 2009 | |
Job function | ||||
Investment Professionals | $648,348 | $682,048 | $287,400 | $200,000 |
Chief Executive Officer | $1,238,569 | $1,659,380 | $613,886 | $500,000 |
Chief Investment Officer | $1,321,136 | $2,125,592 | $800,000 | $834,778 |
Senior Analyst | $454,518 | $333,181 | $250,000 | $179,500 |
Junior Analyst | $153,211 | $76,500 | $95,000 | $52,500 |
Senior Portfolio Manager | $760,450 | $855,837 | $250,000 | $310,000 |
Junior Portfolio Manager | $500,447 | $303,655 | $300,000 | $120,000 |
Senior Trader | $391,064 | $467,429 | $300,000 | $315,000 |
Junior Trader | $85,667 | $57,083 | $75,000 | $52,500 |
Noninvestment Professionals | $474,664 | $356,067 | $200,000 | $162,500 |
Chief Compliance Officer | $552,452 | $341,360 | $280,000 | $230,000 |
Legal/General Counsel | $430,633 | $346,977 | $387,500 | $275,000 |
Officer/Finance Director | $513,637 | $364,809 | $200,000 | $200,000 |
Financial Officer/Manager | $764,000 | $392,000 | $195,000 | $215,000 |
Chief Operating Officer | $536,039 | $407,494 | $250,000 | $275,000 |
Operations Officer | $257,253 | $252,731 | $140,000 | $110,000 |
Chief Technology Officer | $116,250 | $92,500 | $120,000 | $100,000 |
IT Professional | $73,200 | $72,917 | $62,000 | $55,000 |
Investor Relations Officer | $957,099 | $511,527 | $186,490 | $111,500 |
Business Development Officer | $996,601 | $705,333 | $461,250 | $474,852 |
Risk Management Officer | $1,202,209 | $683,789 | $412,500 | $300,000 |
Risk Manager | $270,424 | $489,739 | $100,000 | $108,695 |
Marketing Director/Manager | $1,183,678 | $841,933 | $450,000 | $589,852 |
Marketing Associate | $202,543 | $166,587 | $50,000 | $95,000 |
Controller | $111,671 | $79,669 | $150,000 | $45,000 |
Job title | ||||
Associate | $163,090 | $71,770 | $64,750 | $51,250 |
Assistant/Associate VP | $70,589 | $68,630 | $60,000 | $85,000 |
Vice President | $371,922 | $217,635 | $200,000 | $115,000 |
Senior Vice President | $515,111 | $418,339 | $290,000 | $99,500 |
Director | $463,586 | $505,471 | $245,000 | $174,250 |
Managing Director | $762,887 | $659,278 | $325,000 | $300,000 |
Managing Partner | $1,334,898 | $1,703,781 | $1,000,000 | $800,000 |
President | $1,113,130 | $1,698,928 | $650,000 | $500,000 |
Chairman | $25,000 | $25,000 | $25,000 | $25,000 |
Not Applicable | $362,183 | $304,516 | $250,000 | $200,000 |
Other titles | $486,912 | $342,597 | $192,500 | $200,000 |
Total compensation
Mean | Median | |||
2010 | 2009 | 2010 | 2009 | |
Job function | ||||
Investment Professionals | $805,063 | $805,921 | $400,000 | $325,000 |
Chief Executive Officer | $1,502,049 | $1,659,553 | $651,987 | $473,162 |
Chief Investment Officer | $1,259,861 | $1,794,076 | $797,447 | $520,526 |
Senior Analyst | $560,005 | $440,041 | $400,000 | $305,000 |
Junior Analyst | $244,211 | $193,900 | $230,000 | $170,000 |
Senior Portfolio Manager | $990,041 | $1,021,609 | $315,000 | $379,000 |
Junior Portfolio Manager | $642,780 | $404,828 | $455,000 | $227,500 |
Senior Trader | $503,537 | $563,088 | $394,943 | $350,000 |
Junior Trader | $201,917 | $162,083 | $192,500 | $155,000 |
Noninvestment Professionals | $607,759 | $481,427 | $347,500 | $312,500 |
Chief Compliance Officer | $729,613 | $517,188 | $455,000 | $400,000 |
Legal/General Counsel | $683,967 | $576,523 | $637,500 | $475,000 |
Officer/Finance Director | $682,981 | $496,902 | $400,000 | $356,666 |
Financial Officer/Manager | $925,000 | $543,000 | $375,000 | $340,000 |
Chief Operating Officer | $636,515 | $551,427 | $385,000 | $390,000 |
Operations Officer | $371,525 | $380,225 | $250,000 | $250,000 |
Chief Technology Officer | $289,000 | $257,000 | $280,000 | $240,000 |
IT Professional | $182,250 | $200,417 | $178,500 | $180,000 |
Investor Relations Officer | $1,062,598 | $598,642 | $392,340 | $267,017 |
Business Development Officer | $949,613 | $583,385 | $392,340 | $310,000 |
Risk Management Officer | $1,320,289 | $801,694 | $625,000 | $487,500 |
Risk Manager | $378,529 | $560,441 | $242,500 | $225,000 |
Marketing Director/Manager | $1,203,848 | $723,693 | $400,000 | $300,000 |
Marketing Associate | $306,073 | $268,479 | $140,000 | $175,000 |
Controller | $236,755 | $208,408 | $284,000 | $200,000 |
Job title | ||||
Associate | $255,455 | $168,147 | $175,000 | $175,000 |
Assistant/Associate VP | $146,169 | $137,921 | $152,978 | $163,743 |
Vice President | $516,126 | $364,129 | $330,000 | $275,000 |
Senior Vice President | $651,108 | $493,784 | $520,000 | $250,000 |
Director | $888,590 | $916,406 | $392,500 | $314,750 |
Managing Director | $877,255 | $707,642 | $455,000 | $350,000 |
Managing Partner | $1,505,292 | $1,737,523 | $850,000 | $660,774 |
President | $1,276,378 | $1,650,723 | $776,395 | $612,500 |
Chairman | $2,650,055 | $2,646,556 | $257,609 | $250,611 |
Not Applicable | $507,728 | $433,587 | $420,000 | $365,000 |
Other titles | $601,778 | $471,056 | $337,500 | $325,000 |
Methodology:
AR Magazine’s 2010 Hedge Fund Compensation Report is based on the responses of more than 324 professionals at nearly 289 hedge fund management firms in more than 22 countries. We asked each participant to provide his or her salary, cash and noncash bonuses, and total compensation for both 2009 and 2010, as well as an estimate of 2011 earnings. Results were tabulated individually. All the responses are confidential and were checked for validity. The total compensation includes salary and cash and non-cash bonuses. The Normalized High and Normalized Low amounts represent the upper and lower bounds computed at a 90 percent confidence level. The mean and median values are computed with observed data. Results are shown where sufficient data exists.
