Following a year in which the hedge fund industry suffered one of its worst periods on record, there are clear signs that a recovery is underway with hedge fund employee compensation on the rise, according to a report by Glocap Search and HedgeWorld.
In addition to raising compensation over 2008 levels, funds have begun hiring again.
Adam Zoia, chief executive at Glocap, says while it may be surprising to hear that hedge fund compensation is on the rise, especially given that some funds have still not passed their high water marks, the increases are logical given that they are in comparison to 2008, one of the worst years on record for the industry.
The single strongest driver of hedge fund compensation continues to be fund performance, and this year almost all strategies of hedge funds have performed well.
In 2008, owners of hedge funds heavily subsidised employee compensation in order to keep their teams together and to help boost morale. This year there was some initial thought of taking back some of that subsidy from last year and paying lower bonuses than would otherwise be the norm given performance levels.
"Instead, most funds are formulating this year’s bonus numbers on the basis of this year’s performance in isolation from last year and are viewing last year as one-off subsidy that will not be ‘paid back’ by employees to owner," Zoia says.
The report also shows that on average 2009 base salaries for all investment professionals and traders were essentially flat (regardless of fund size or performance) with increases in the low single-digits.
Estimates call for 2009 cash bonuses for investment professionals (those paid in early 2010) to increase about 15 per cent on average above suppressed 2008 levels. The highest percentage increases will go to professionals at those funds that decreased compensation the most in 2008. These bonus levels are still, on average, below 2007 levels.
