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Compensation in the asset management industry is rebounding after
two difficult years, according to a review by Greenwich Associates and
Johnson Associates.
The firms found significant levels of asset depreciation
and investor redemptions that persisted into 2009 have given way and
U.S. investment management firms are showing signs of recovery in both
overall company performance and compensation levels.
Although the global market crisis reduced average
compensation levels throughout the asset management industry, investment
professionals at hedge funds experienced by far the largest declines,
according to a press release. Compensation figures reported by study
participants show that as markets imploded in 2007–2008, average total
compensation for senior hedge fund fixed-income investment professionals
declined more than 40%, only to rebound by about the same amount from
2008–2009. At $1.1 million, projected 2010 average total compensation
for senior fixed-income professionals at hedge funds exceeds pre-crisis
levels.
Average reported compensation for senior hedge fund equity
professionals declined 44% from 2007–2008 and then fell another 15%
from 2008–2009. Total compensation for these professionals is projected
to increase by 8% in 2010 to $875,000.
Equity and fixed-income professionals at traditional asset
management firms have experienced far less volatility in compensation
levels, the press release said. Average compensation levels among senior
fixed-income professionals at traditional funds and advisers declined
by about 5% from 2007–2008 and then jumped 53% from 2008–2009. Those
levels are projected to increase approximately 10% to $525,000 in 2010.
Average compensation among senior equity professionals at
traditional funds and advisers actually increased 34% from 2007–2008 and
then held steady from 2008–2009. These levels are projected to increase
12% to $950,000 in 2010.
The expanding influence of the Chief Investment Officer
(CIO) position within many asset management organizations is reflected
in the growing disparity in total compensation between CIOs and other
investment professionals. Average 2009 total compensation for CIOs in
equities was approximately $1.8 million, compared to $825,000 for equity
portfolio managers, $540,000 for directors of research and $320,000 for
analysts. In fixed income, CIOs earned approximately $850,000 on
average compared to a range of $340,000–$525,000 for other investment
professionals.
In 2009, bonuses accounted for approximately 70% of cash
compensation among equity portfolio managers and 50-60% among equity
analysts and traders, with the remainder salary. For fixed-income
portfolio managers, salary makes up a bigger portion of cash
compensation. Bonuses for fixed-income investment professionals ranged
from approximately 65% for traders and 55% for portfolio managers to
roughly 25% for analysts.
Although most asset management organizations are moving in
line with other financial service companies by altering compensation
structures in favor of long-term incentives, these changes have yet to
be reflected in the actual compensation packages reported by asset
management professionals, the review found. Outside of senior positions
such as CIO, cash salary and bonus continue to be perceived as the most
significant portion of asset management compensation.
Beyond 2010, the consultants at Greenwich Associates and
Johnson Associates project a significant expansion in the use of
deferred/long-term incentives by asset management firms. This growth
will in all likelihood come at the expense of bonuses, which are
expected to decline as a share of overall compensation while both
deferred/long-term compensation and cash compensation increase.