Opalesque Industry Update - Hedge fund industry compensation rose for the 3rd consecutive
year, as trends of increased investor visibility, organizational transparency, increased reporting
requirements and role evolution accelerated on record industry assets. Average compensation
rose between five and ten percent in 2013, with wide categorical and performance driven
disparity, and with Portfolio Managers, Senior Analysts and Risk Managers at top performing
funds seeing the highest relative increases, according the latest 2014 Glocap Hedge Fund
Compensation Report, released today by Glocap and HFR.|
Over the first three quarters of 2013, global hedge fund industry capital exceeded $2.51 trillion, the fifth consecutive quarterly asset level record, as the HFRI Fund Weighted Composite Index gained +5.5 percent YTD. The percentage of all hedge funds which reached their high watermarks YTD through September also rose to 62 percent, a sharp increase from the 48.4 percent of funds which reached respective high watermarks in 2012.
"Hedge funds bonus pools were fueled in 2013 by the combination of increased performance fees and additional management fees generated on an increase in investor capital allocations. These larger bonus pools will be passed through this year as higher compensation for key staff,” commented Anthony Keizner, Head of Glocap's Hedge Fund practice.
Hiring picks up, transparency takes center stage Several important trends defined the compensation picture for 2013. In general, 2013 saw increased hedge fund hiring, with an emphasis on qualified entry-level positions, in contrast to prior years’ focus on legal, operational and marketing hires. As a result of the increase in hiring, qualified candidates more frequently received multiple offers and the duration of searches (from posting to fill) was shorter.
Indicative of the trend toward greater total organizational transparency, there was again a premium for candidates who were in historically internal-facing roles but were capable of being market- or client-facing. These include Risk Management, Information Technology and front office roles, as well as Portfolio Managers, Traders and Analysts. One factor which inhibited greater hedge fund compensation increases was a decline in compensation in the banking industry and a flat compensation environment for private equity. Hedge funds were also under continued pressure to provide greater liquidity, more frequent reporting of results, less advanced notice for redemptions and short or no lockup periods.
Compensation trends up at largest funds while PMs must show value Entry-level Analysts at large hedge funds experienced flat base salary increases, though bonuses increased between 0 and 10 percent, with average compensation at a mid-performing fund totaling $353,000. Portfolio Managers and other Senior Investment Professionals at large hedge funds also experienced flat base salaries, although bonuses ranged from a decrease of five percent to an increase of 20 percent, with an average compensation for a PM of a large fund totaling $2.2 million.
Another important trend was an increased focus from hiring managers at large funds on PM candidate performance for 2008 and 2011, as managers needed to demonstrate not only proof of outperformance in good years, but also an ability to weather market downturns. Hiring managers were also more likely to require candidates to show an ability to generate performance without overexposure to risk, as risk limits continue to tighten. Budgets for analyst positions, travel expenses and other costly resources also appeared to be sharply reduced, as more funds indicated an interest in controlling costs.
“Given SEC registration and general regulatory and investor pressure, hedge funds bulked up their legal and operational teams in 2011 and 2012. This slowed in 2013, with the effect of reducing the rate of compensation increases for the average employee in these roles,” noted Keizner. “Compensation trends in 2013 reflect the powerful evolution of the hedge fund industry and individual funds toward fully transparent, client-centered financial services organizations, while maintaining a required focus on generating performance for investors,” stated Kenneth J. Heinz, President of HFR. “Compensation policy is designed to create a greater alignment of interest between a fund’s management and investors, support greater organizational stability, and improve investment strategy execution. As a result of this continued enhancement and refinement, the hedge fund industry has grown to a record level of investor capital in 2013 and is well positioned for additional growth and expansion in coming years.”