Hedge Fund Compensation Report Reveals Disconnect Between Performance and Pay

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In the midst of financial industry compensation reform efforts, report shows that 46 percent of hedge fund employees will see their pay increase again this year.

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We believe part of this talent movement is a function of TARP. As government supported banks face limits on compensation, talented investment professionals move to hedge funds where their upside is not capped.

A hedge fund compensation report published by Job Search Digest, publishers of Hedge Fund Jobs Digest, revealed a disconnect between fund performance and hedge fund compensation. The third annual industry survey of hundreds of hedge fund managers and employees, in mostly privately held firms, showed that bonuses continue to rise despite 45 percent of respondents reporting fund losses.

Those professionals who responded to the survey reported average pay of nearly $300,000 last year – continuing a trend of annual pay increases in hedge fund jobs. This year, 28 percent expect increases of 15 percent or more in overall compensation and 9 percent of respondents expect their compensation to double over last year.

Even in cases where funds did not perform well, hedge fund employees were paid handsomely. Some portfolio manager and trader bonuses in underperforming funds were as high as those working for funds that performed well.

“We expect, if a fund is successful, there is money to be made in down markets and the portfolio managers and traders drive that success,” says David Kochanek, publisher of Hedge Fund Jobs Digest, a research service focused on hedge fund jobs. “What investors don’t expect is large bonuses to be paid out when funds do not perform. We saw some of that this year, likely due to multi-year bonus guarantees.”

In some cases, base salaries have moved higher despite short tenure with the firm. In fact, 40 percent of respondents said they have worked for their current firm for less than two years and 27 percent said they moved from investment banking.

“We believe part of this talent movement is a function of TARP. As government supported banks face limits on compensation, talented investment professionals move to hedge funds where their upside is not capped,” Kochanek said. “Now is a good time to take talent away from pay constrained firms.”

The gap between front office and back office salaries is widening. In Q4 2009, portfolio managers, quants and traders all expected to finish this year with big increases over 2008 – as high as 50 percent, with the majority coming in the form of bonuses.

The back office is not faring as well. Those in supporting roles are expecting little to no increase and, in some cases, expect a double digit pay cut. Even with lower compensation, professionals in back office positions reported some of the highest satisfaction with pay. This is likely due to a limited number of back office career options in a tight job market.

About The Report

The 2010 Hedge Fund Jobs Digest Compensation Report is based on compensation data collected directly from hundreds of Portfolio Managers and employees from firms, both large and small during October and November 2009. Respondents participated from across the globe and included some of the largest and most recognized hedge funds. Among the respondents are Citi, Black River Asset Management, Deutsche Bank, Gartmore Investment, Gottex, Green Arrow Capital Management and UBS.

The full report can be found at http://www.HedgeFundCompensationReport.com

About Job Search Digest

Since 2002, Job Search Digest has provided web-based career services, catering to professionals in the private equity, venture capital, investment banking and hedge fund industries worldwide. Hedge Fund Jobs Digest is a research service that maintains a current database of jobs in hedge funds and provides its members with daily job updates.

For more information contact David Kochanek, publisher, Job Search Digest.
Tel: 760-634-4900.

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