Compensation Survey: Banking on the Back Office

June 01, 2012   Britt Erica Tunick

Hedge fund managers’ pay has shrunk, but tech pros and marketers are in demand.

(Illustration by Mitch Blunt )

Click here to fill out the 2013 Hedge Fund Compensation Survey.

Hedge fund professionals can still make big bucks - as long as they aren't actually managing money.

In a year when many hedge funds performed poorly, people on the investment side at hedge funds saw their bonuses take sizable hits. But their colleagues in other areas - particularly technology, risk management, and marketing and investor relations - actually experienced big pay increases, according to AR's annual hedge fund compensation survey. Risk managers and technology professionals are benefiting from a spate of new regulations with which hedge funds must comply, making their skills extremely important right now. At the same time, well-connected marketing and investor relations professionals are in high demand in what remains a difficult climate for raising assets. And hedge fund managers who are hiring don't have to pay a premium for investment talent, since there are still plenty of people angling for open positions.

Hedge fund investment professionals experienced a 14.5 percent decline in their total pay, dropping from an average of $807,937 in 2010 to $690,786 last year, according to the survey. That's not surprising in a year when the average hedge fund declined by 2 percent, since managers earn the lion's share of their income from charging a 20 percent fee for performance. Performance fees are part of the compensation formulas used to calculate the bonuses that represent the majority of most investment professionals' compensation. Consequently, total compensation, comprising salary and bonuses, for chief investment officers fell 27 percent on average last year.

"It's been a very difficult and challenging compensation environment because an individual's pay is tied into the performance of the overall fund," says John Carley, president of New York-based executive search firm A-L Associates.

Chief technology officers fared better, however: Their total compensation rose by a stunning 85 percent, with average total compensation climbing to $594,286, from an average $321,429 in 2010. That's thanks to new rules and regulations like the Securities and Exchange Commission's Form PF, SEC registration and the Internal Revenue Service's upcoming Foreign Account Tax Compliance Act. As a result, hedge fund firms have been scrambling to meet multiple new reporting requirements, and CTOs are in charge of the complex software and programs required for hedge funds to stay compliant.

"We have a ton of positions for IT, and most of them are developer roles, where we've seen an increase in salary levels," says Susan Whitledge, a senior consultant with Chicago-based search firm First Associates.

Marketers also proved they have highly sought-after skills in today's world. Headhunters say marketing, investor relations and other positions related to interacting with investors or updating them on a firm's activities have become more important than ever as firms look to increase their assets under management or replace assets lost through redemptions or poor performance. In 2011, total compensation for investor relations officers rose an average of 18 percent, to $432,503. Business development officers' pay also climbed 18 percent, to $536,556, on average.

"Compensation for many individuals - particularly those at underperforming firms - in the hedge fund industry was flat to down 10 percent last year," says Lynn Tidd, who leads the hedge fund practice at New York-based global executive search firm Russell Reynolds Associates. "But the exception to the rule is that folks on the client side are in such high demand, their compensation continues to creep north. We're seeing a ton of demand for marketing, sales, IR and product specialists - anything client facing."

Total compensation for marketing directors and managers rose 17 percent, and marketing associates benefited from a 12 percent boost. Those numbers are poised to climb even higher in 2012, with the number of marketing positions available outnumbering the number of qualified candidates by far, according to numerous recruiters in the industry.

"Star marketers have fee participation or may be sitting on commission trailers for multiple years," says Tidd. "There's a big gulf between the top tier of marketers and the next tier down."

Risk management is another area where compensation is rising and where headhunters say they are seeing a spike in the number of job openings, but it doesn't necessarily pay to be on top. Though average total compensation for risk managers rose 11 percent in 2011, senior risk management officers experienced a 22 percent decline in their average total pay. Many firms are looking to save money wherever they can and have begun eliminating senior positions, folding their responsibilities into the duties of other related senior executives, such as chief financial officers.

"The higher-end positions are seeing more consolidation, and everyone is looking for talent to come in at the middle level instead of the senior level," says Whitledge.

But even though many firms are trying to economize when it comes to compensating their staffs, headhunters say most are still willing to pay up to fill key posts that can help them attract more investors or generate better profits in the long run. Beyond marketing, headhunters are seeing increasing demand and higher salary potential for junior, midlevel and senior analysts, as well as for portfolio managers and traders with experience in distressed, credit, macro and quant strategies.

"Hedge fund managers are seeing some daylight for the first time in quite a long stretch and consequently looking to play some offense," says A-L Associates' Carley.

Hedge funds have been looking to Wall Street for talent, hoping to scoop up underpaid, disgruntled investment bank employees whose experience can easily translate to hedge funds. But headhunters say the flow of talent between the hedge fund industry and the sell side has begun to move in both directions. "Hedge funds have poached from the more traditional shops like the Goldman Sachses of the world, using the allure of greater compensation, accelerated career development and cultural entrepreneurship," says Russell Reynolds's Tidd. "What's happening now is that a lot of the traditional asset managers have developed alternative strategies of their own. So, there is now a migration back to the larger asset management firms."

For the most part, people in the hedge fund industry who remain employed are being very careful about jumping to new positions, even when their firms' performance may be faltering. "Everyone will look if you have an interesting opportunity, and they'll listen," says Michael Cooke, a partner with New York-based search firm Execu-Search Group. "But they are moving with caution."

The incentive to change firms has also diminished significantly. Just a few years ago, firms would buy out the deferred compensation package of individuals they were eager to hire, but these days switching firms often means walking away from those packages and leaving money on the table. Nonetheless, people haven't stopped moving entirely.

"People are saying there are no jobs out there, but it's not true," says Steven Fleming, CEO of New York-based executive search firm Wall Street Options. "There are still superstars out there investing in various investment strategies, actively raising capital and building new businesses."

Many big investment banks unloaded their proprietary trading desks to comply with rules introduced as part of the Dodd-Frank Act; this has created several new jobs, says Fleming. Some proprietary traders who suddenly found themselves out of work shifted their focus to hedge funds and began launching firms of their own.

Moving to a start-up means uncertainty in an environment where fundraising is harder than ever. But for employees at firms that are struggling and unlikely to pay well in the near future, many people still believe the potential for a better payout is worth that risk.

BASE SALARY

Mean

Median

2011

2010

2011

2010

Job Function

Investment Professionals (All)

$190,401

$178,007

$160,000

$150,000

Chief Executive Officer

266,125

264,091

200,000

184,238

Chief Investment Officer

189,511

183,227

200,000

167,231

Senior Analyst

150,167

136,590

150,000

142,500

Senior Portfolio Manager

176,286

150,464

175,000

160,000

Junior Portfolio Manager

143,685

139,819

125,000

125,000

Senior Trader

171,735

167,144

175,000

175,000

Junior Trader

128,333

113,000

125,000

114,000

NonInvestment Professionals (All)

$175,706

$181,039

$175,000

$167,500

Chief Compliance Officer

184,102

228,891

200,000

175,000

Legal/General Counsel

230,333

377,667

250,000

250,000

Officer/Finance Director

212,953

196,782

200,000

180,000

Financial Officer/Manager

160,685

168,092

161,369

159,276

Chief Operating Officer

194,053

233,342

200,000

177,500

Operations Officer

144,829

120,342

134,790

91,008

Chief Technology Officer

130,714

119,857

140,000

129,000

IT Professional

143,000

129,000

150,000

115,000

Investor Relations Officer

153,712

146,331

135,000

142,500

Business Development Officer

177,185

160,975

200,000

175,000

Risk Management Officer

183,125

125,714

232,500

180,000

Risk Manager

162,828

134,651

162,500

136,102

Marketing Director/Manager

152,355

146,832

125,992

157,500

Marketing Associate

106,733

105,226

80,500

76,000

Controller

125,200

116,718

90,000

85,589

Job Title

Chairman

$615,545

$610,042

$175,000

$175,000

President

286,866

279,763

100,643

72,783

Managing Director

214,045

201,778

200,000

200,000

Senior Vice President

199,044

319,037

200,000

185,000

Managing Partner

191,302

178,880

200,000

163,616

Director

159,585

146,548

150,000

132,500

Vice President

136,799

124,478

137,500

125,000

Associate

92,412

86,638

80,500

76,000

Other titles

184,110

170,156

175,000

175,000

TOTAL BONUS

Mean

Median

2011

2010

2011

2010

Job Function

Investment Professionals (All)

$500,385

$629,930

$150,000

$195,000

Chief Executive Officer

771,026

930,832

350,000

409,000

Chief Investment Officer

850,463

1,245,951

150,000

250,000

Senior Analyst

370,859

314,510

205,000

152,811

Senior Portfolio Manager

431,466

457,962

137,500

155,623

Junior Portfolio Manager

281,093

313,597

63,393

175,000

Senior Trader

147,602

241,563

80,000

180,000

Junior Trader

79,333

70,667

90,000

82,000

NonInvestment Professionals (All)

$311,652

$299,329

$105,000

$109,342

Chief Compliance Officer

312,845

361,709

100,000

125,000

Legal/General Counsel

527,467

430,200

357,000

310,000

Officer/Finance Director

398,564

446,484

147,969

175,000

Financial Officer/Manager

65,000

39,000

70,000

17,000

Chief Operating Officer

511,322

463,415

157,500

112,500

Operations Officer

124,359

147,495

100,000

77,384

Chief Technology Officer

463,571

201,571

40,000

40,000

IT Professional

63,521

85,268

50,000

62,000

Investor Relations Officer

278,790

219,906

70,000

95,000

Business Development Officer

359,371

292,979

240,500

125,000

Risk Management Officer

985,625

1,379,714

725,000

1,000,000

Risk Manager

326,492

304,391

155,469

168,815

Marketing Director/Manager

332,518

267,114

53,047

35,000

Marketing Associate

80,400

61,145

55,000

18,837

Controller

103,748

82,584

95,000

60,000

Job Title

Managing Partner

$1,192,190

$1,650,757

$213,999

$300,000

President

627,184

670,222

75,000

321,500

Managing Director

406,078

545,298

300,000

337,500

Senior Vice President

373,405

243,012

217,500

160,000

Chairman

366,828

344,824

200,483

196,971

Director

305,686

259,545

130,000

143,815

Vice President

122,434

167,831

60,000

100,000

Associate

76,241

57,757

55,000

18,837

Other titles

246,977

279,578

97,612

100,000

TOTAL COMPENSATION

Mean

Median

2011

2010

2011

2010

Job Function

Investment Professionals (All)

$690,786

$807,937

$312,329

$350,000

Chief Executive Officer

1,037,151

1,194,923

600,000

632,500

Chief Investment Officer

1,039,974

1,429,178

300,000

424,888

Senior Analyst

521,026

451,100

362,034

300,000

Senior Portfolio Manager

607,752

608,427

297,439

300,000

Junior Portfolio Manager

424,778

453,416

180,000

300,000

Senior Trader

319,337

408,706

218,500

342,500

Junior Trader

207,667

183,667

200,000

180,000

NonInvestment Professionals (All)

$487,359

$480,368

$301,748

$285,000

Chief Compliance Officer

496,946

590,600

350,000

312,500

Legal/General Counsel

757,800

807,867

607,000

550,000

Officer/Finance Director

611,517

643,266

355,000

350,000

Financial Officer/Manager

225,685

207,092

242,500

162,000

Chief Operating Officer

705,375

696,757

387,500

351,500

Operations Officer

269,187

267,837

240,000

208,392

Chief Technology Officer

594,286

321,429

190,000

180,000

IT Professional

206,521

214,268

185,000

185,000

Investor Relations Officer

432,503

366,237

237,500

250,000

Business Development Officer

536,556

453,954

412,500

325,000

Risk Management Officer

1,168,750

1,505,429

950,000

1,221,000

Risk Manager

489,321

439,042

316,783

289,917

Marketing Director/Manager

484,873

413,946

250,000

225,000

Marketing Associate

187,133

166,371

135,000

93,176

Controller

228,948

199,302

180,000

135,000

Job Title

Managing Partner

$1,383,492

$1,829,637

$437,751

$502,813

Chairman

982,373

954,865

342,118

322,096

President

914,049

949,985

240,000

437,444

Managing Director

620,124

747,076

525,000

537,500

Senior Vice President

572,449

562,050

406,017

344,606

Director

465,271

406,092

270,000

277,417

Vice President

259,234

292,309

197,500

250,000

Associate

168,653

144,395

135,000

93,176

Other titles

431,087

449,734

276,000

250,000

Methodology

AR's 2012 Hedge Fund Compensation Report is based on the responses of investment and noninvestment professionals at nearly 300 hedge fund management firms in 27 countries. We asked each participant to provide his or her salary, cash and noncash bonuses, and total compensation for 2010 and 2011, as well as an estimate of 2012 earnings. Results were tabulated individually. All the responses are confidential. The total compensation includes salary and cash and noncash bonuses.



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