Overall compensation for hedge fund jobs is recovering from the beating it took during the credit crisis. The $1.9 trillion industry is also getting a fresh influx of capital again, according to news from Advanced Trading.
Senior equity professionals at hedge funds, including portfolio managers, traders, and analysts, made an average of $875,000 last year, up from $800,000 in 2008, based on data quoted from compensation specialists Greenwich Associates and Johnson Associates. Fixed income professionals fared even better, seeing their average incomes rise from $1.0 million to $1.1 million.
The shrinking fortunes of proprietary traders at many of the big banks may be driving the trends toward higher hedge fund compensation. Profits are down at the big banks, and the new Dodd-Frank regulations and pressure from the SEC have forced banks to cut their proprietary trading arms loose and curb pay.
For example, Morgan Stanley reportedly reduced bonuses and also bumped up the portion of the bonus that must be deferred for up to 3 years to 60 percent, from 40 percent. Top executives at the bank will see 80 percent of their bonuses deferred.
The downward pressure on bonuses has already led to senior proprietary traders at Morgan Stanley, Goldman Sachs, and elsewhere to head out the door and either join hedge funds or start their own.
However, the hedge fund industry is much smaller than the banking industry. So it may not be able to absorb all those who want to leave a Wall Street trading desk for greener pastures. “We are not talking about thousands of people because there aren’t enough jobs,” said Alan Johnson, Managing Director of Johnson Associates. “But you will see a lot of the most valuable and most prominent people go.”
Will the flow of traders from the big banks continue in 2011? Or narrow down to a mere trickle of a handful of stars, as usual? Add your comments below.