Hedge Fund Compensation Report ~ market folly

Saturday, February 5, 2011

Hedge Fund Compensation Report

The pain of 2008 now seems like a distant memory for those working at hedge funds.

As the U.S. economy continues to recover at a slow pace, hedge fund managers are recording double- digit growth and outperforming the markets once again. According to Eureka Hedge, total assets in the industry are now on track to cross the historical high of US $1.95 trillion by end of 2011. The upside is showing in hedge fund pay.

The latest report on Hedge Fund Compensation revealed that hedge fund managers received double-digit increases in total compensation to match the fund's performance, primarily driven by big year-end bonuses. The annual industry report is based on data collected directly from hundreds of hedge fund managers and employees.

In contrast with 2009 compensation, that was essentially flat when compared to the year earlier, 2010 pay came in 10 percent higher. More than half expected a raise in total compensation with the average coming in at USD $326,000 and about one quarter expecting to earn between $300,000 and $500,000. The number of professionals expecting pay cuts decreased from 19 percent last year to 12 percent.

Investors have started asking more questions than in the past and the fund manager's track record is no longer enough to get them to part with their money. They want to know how the strategy is being executed and they want more transparency in the reporting and fee calculations as well.

Despite increased investor demands, hedge fund managers still have a business to run. Some are requiring limited liquidity (a more stable base of capital) and investors are seeing a reduced management fee structure in return. Performance fees, however, are still driving big bonuses.

The front page criticism of Wall Street bonuses has primarily discussed investment banks, but hedge funds are not immune to this criticism. Investors also want to see a bit more skin in the game; 12 percent of hedge fund professionals reported that they are now required to invest a portion of their bonus back into the fund.

The report reveals that the higher the overall earnings, the more bonus matters, especially for those in the highest pay ranges. The top earning hedge fund employees expect a full 80 percent of their cash compensation to come in the form of bonus payments, but these payouts are by no means in the bag. Fewer than one in five hedge fund employees reported having a guaranteed bonus.

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The 2011 Hedge Fund Compensation Report has grown to become the most comprehensive benchmark for hedge fund compensation practices in the industry. It is based on compensation data collected directly from fund professionals representing both large and small firms. Click here for the full Hedge Fund Compensation Report.

About the Author

David Kochanek is the publisher of HedgeFundCompensationReport.com and the hedge fund career site, Hedge Fund Jobs Digest, a web-based career service catering to investment professionals.

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