The average reported cash compensation for hedge fund professionals was down this year coming in at USD351,000, according to 2016 Hedge Fund Compensation Report. The decrease of 5 per cent on last year’s figure was driven by lower bonus payouts.
Although average base compensation increased by single digits again this year, lower bonuses pulled down total hedge fund compensation.
"Despite smaller bonuses, over half of our respondents expected to take home more cash compensation than last year," says David Kochanek (pictured), Publisher of HedgeFundCompensationReport.com.
It is weaker fund performance that is driving lower bonus payouts. This year 75 per cent of hedge fund professionals reported positive performance for their funds, a decline of 4 percentage points from last year's report. When compared to the 90 per cent that reported positive returns a couple of years ago, the lower bonuses are no surprise.
The take home pay levels were still significant, with 39 per cent reporting cash compensation of USD250,000 to USD500,000 and 15 per cent earning more than USD500,000. While those making less than USD500,000 will see bonuses that make up about half of their cash compensation, the top earners count on bonuses for about two thirds of their pay.
It is not traders who reported getting hit by the lower performance numbers, it is the directors and portfolio managers who saw the biggest drop in bonus payouts. "Where last year we reported a disconnect between performance and bonus payouts, this year those with the more influence in the investment decision either saw lower bonus growth or a decrease," says Kochanek.
Again this year, there was still a disconnect between bonus pay and performance but, this time around, the disconnect was for those not directly involved in the investment decision process. For example, Chief Financial Officers in firms with large funds and negative performance expected a mean bonus of over USD250,000, but their peers in firms reporting gains of 10 per cent or better expected just over half that bonus amount. "This is what makes hedge fund compensation benchmarking such a complex activity," says Kochanek. "It's not as easy as saying 'this is what CFOs make.' In addition to titles, you need to ask about responsibilities, fund size, performance, and industry experience."
For the third year running, there was a decline in the number of respondents reporting as being "very concerned" about their job security. In 2015, 8 per cent fell into this category, last year it was 10 per cent and 13 per cent the year before that. It seems weaker fund performance is not of great concern to hedge fund professionals, despite historical evidence that suggests the level of concern should be increasing.
