The majority of hedge fund executives are unsatisfied with their compensation despite the fact the majority of fund managers are making more money in 2016 than 2015, a year when most hedge funds generally underperformed the S&P 500 once again. The 2017 Hedge Fund Compensation report, surveying compensation practices from 200 of the world’s largest hedge funds, showed fund managers who made $300,000 to $500,000 received the largest bump in earnings while the low end of the hedge fund pay scale, making less than $50,000 per year, received the least.
Hedge fund Pay among top earners is largely dependent on bonus
The more hedge fund compensation that was dispensed in 2016 the more they were dependent on bonus, the tenth annual survey revealed.
Executives who received over $1 million in annual compensation did so based on nearly 80% of this compensation coming from bonus, with their average salary just over $250,000. Executives who received $500,000 to $1 million likewise had an average salary near $250,000. Those at the bottom end of the pay scale received the least amount of bonus compensation.
While bonus is how most make big compensation gains, it is not entirely based on performance, as 21% of respondents received guaranteed bonuses, up 1% from the previous year. Of the guaranteed bonus group, 13% are guaranteed a bonus of 50 percent or less of their base pay, 8 percent are guaranteed bonus pay that exceeds 50 percent of their base, the report noted.
Hedge funds who broke even in 2016 are expecting a bonus of $154,000 while those who were down on the year expect $156,000. By contrast, those fund managers who delivered over 25% positive performance expected to receive a $179,000 bonus on average.
David Kochanek, publisher of the report, notes the oddity of high hedge fund compensation without delivering investors above beta-benchmark performance:
Unfortunately, this also marks the third straight year we report on a hedge fund industry mired in underperformance. The woes facing the hedge fund industry are compounded this year, reaching beyond performance, and creeping into fund raising and industry expansion. This year is witness to net negative asset flows as high profile investors redeem, and actual reductions in the number of hedge fund firms as firm closures outpace new starts.
Most hedge fund managers are satisfied with their work-life balance
How many hours per week do hedge fund executives work? The majority, 44%, work 40 to 49 hours per week, the largest percentage; 29% worked 50 to 59 hours per week while 10% of fund managers only work 30 to 40 hours per week.
Close to half, 44%, of respondents said they had a good work – personal life balance while 35% said they had either above average or excellent work – life balance.
Want to grab a piece of this compensation and lifestyle? The best opportunity occurs in Research, with 31% anticipating hiring in that area. Due Diligence and Risk Management were the categories that had the least expectations for future hiring. On a year over year basis, hiring plans fell 4% for Risk Management positions, 3% for Legal and Research positions, 2% percentage points for Due Diligence positions and 1% for Investor Relations.
Other findings of note:
- The segment of respondents expecting earnings of $200,000 or less contracted by 6 percentage points.
- Base salaries continue to rise for those in the uppermost pay bands.
- Bonus pay represents 80 percent of total compensation for hedge fund professionals in the uppermost pay bands.
- Sixty-nine percent of hedge fund professionals work in firms employing 99 persons or fewer.
- Fifty-six percent of this year’s survey respondents report having between 6 and 15 years of experience in the hedge fund industry.