From the category archives:

Compensation

Hedge funds begin a new year on the heels of a performance record  not matched since 2013. Gains will undoubtedly reach 8 percent or better, and assets under management stand at an all-time high.

While these statistics are inspiring, the question on the lips of the aspiring hedge fund professional is what does this mean for bonus and base pay? The best source for answers is the 2018 Hedge Fund Compensation Report.

Base Pay

According to the report, an average $0.38 of each dollar in compensation paid to hedge fund professionals came in the form of base pay, down from $0.41 last year. However, the highest earners, those earning in excess of $1 million, relied substantially less on their base pay, with only $0.17 of every dollar in total compensation coming in the form of base pay. In sharp contrast, those on the lowest rung of the earnings ladder saw base pay account for $0.76 of every dollar earned.

Bonus Pay

The principal driver for bonus pay is performance. Said performance may be defined as personal performance, fund performance, firm performance or a combination of any of the above. These variables make a direct comparison of one’s total compensation to the overall industry’s performance impossible. For this reason, one of the Hedge Fund Compensation Report segments displays results based upon fund performance.

As  we see in the breakdown above, bonus expectations for funds with positive gains increase as anticipated gains rise. The obvious exceptions are found with those working in funds that expect to break even or to experience negative gains.

Bonus expectations are lower, but, nonetheless, they are anticipating bonuses. While this result is counter-intuitive to many, one must consider the methodology by which individual firms calculate bonus pay. For example, bonuses that are based on personal performance can be paid regardless of firm or fund performance when those personal benchmarks are met or exceeded.

The takeaway from this graph is that in 2017, bonus expectations for hedge fund professionals whose funds were performing in positive territory were substantially in line with gains.

Other Factors

Only two factors affecting bonus pay and/or total compensation have been analyzed here. There are many other factors, all of which are available in detail in the 2018 Hedge fund Compensation Report. For example, such variables as firm size, fund size, working group size, method of bonus calculation, fund strategy, and equity sharing, to name a few.

What About Hedge Fund Jobs?

The uptick of overall performance, combined with growing assets under management, can only be viewed as a positive for employment opportunities. However, it is essential that hedge fund job seekers optimize their understanding of hedge fund compensation. This enables job seekers to target firms that present the highest compensation opportunities in line with their skills, experience, educational background and expectations.

At the same time, those responsible for hedge fund hiring will benefit from the report by minimizing lost recruiting opportunities. Having access to the detailed information the 2018 Hedge Fund Compensation Report provides, gives hiring managers the facts needed to make competitive job offers.

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Have you heard? In an effort to close the wage-gap between men and women in the workplace, New York City Mayor Bill de Blasio (D) signed an amendment to the New York City Human Rights Law. This law takes effect on Halloween. Commencing October 31, no employer may inquire into the salary history of prospective applicants.

Looking for a Hedge Fund Job in NYC?

It is impossible to predict how this provision will affect hedge funds and, more broadly, NYC employers. However well intentioned the law may be, there are certain to be unintended consequences, some of which may affect those pursuing a career in hedge funds and the hedge fund industry as a whole. After all, New York City is the hedge fund capital of the world, with over $1 trillion in assets under management, which equals about one-third of all monies invested in the industry.

This new piece of legislation should not deter anyone from pursuing their dream of a hedge fund job. It is easy to envision instances, in which no requirement for disclosure of one’s previous salary history could prove advantageous, particularly if the prospective applicant is trying to upgrade from a poorly negotiated compensation deal with his or her current employer.

It is also true that certain job seekers may be placed at a disadvantage if his or her salary history is not knowable. Fortunately, the law in question allows for the voluntary disclosure of one’s salary history. However, the existence of this law may cause hedge funds to err on the side of caution and eliminate any discussion of an applicant’s salary history as a matter of policy.

Salary Negotiation

The fine art of salary negotiation does not begin until an offer is on the table. Without a salary history as a starting point in these proceedings, prospective employers will need to develop a compensation strategy that relies almost entirely upon the value a given applicant brings to the firm so that a conclusion may be reached with regard to the upper limit of compensation.

At the same time, the applicant must formulate, in his or her own mind, an acceptable range of compensation. A positive outcome for both parties only occurs at the nexus of these numbers.

More than ever before, access to a trusted compensation guide, such as the 2017 Hedge Fund Compensation Report will prove to be an invaluable resource for both the job seeker and the prospective employer. Such a report provides applicants with the data necessary to make informed decisions with regard to the level of compensation offered by a prospective employer and provides the would be employer with a broad view of industry pay scales.

About Hedge Fund Jobs

The hedge fund industry continues its winning streak with 9 straight months of gains, the longest winning streak since the financial crisis. Hedge fund assets under management continue to climb and, although the number of hedge fund firms is in decline, the demand for talent is rising. The hedge fund industry is replete with opportunities for well prepared applicants…even in New York City!

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Hedge Fund Numbers Shrink as Assets Under Management Soar

March 20, 2017

The suggestion that assets under management are soaring is admittedly a bit Trumpian, but the fact is that the number of hedge funds shrank to 9,803 (including funds of funds) while 2016 industry assets under management climbed to just over $3 trillion according to the HFR Market Microstructure Report. What Can Be Inferred From the […]

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What Was Under Last Year’s Tree for Hedge Fund Professionals?

January 23, 2017

For starters, around three-quarters of hedge fund professionals will not receive their bonuses until the first quarter of 2017, according to the  Hedge Fund Compensation Report, so, if there was nothing under the tree, no worries, it is coming. What Will Bonuses Look Like This Year? Although the financial media has painted a bleak picture […]

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I Got the Offer – Now What?

November 14, 2016

Everyone that breaks into the hedge fund industry asks themselves that question. The education, the experience, the network of contacts, the untold hours spent writing and re-writing resumes/CVs and cover letters, interviews – it ultimately ends with the negotiation of a compensation package. Prior to the finalization of this key hiring element all one has […]

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Equity Shares Shown to Have Declined in 2015

April 4, 2016

Equity sharing is an important variable to consider in determining the level of total compensation an individual will receive from his hedge fund firm. While equity or upside sharing is not a topic typically perceived as applicable to those just beginning a career in the hedge fund field, it ultimately becomes incredibly important to the […]

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The Goldilocks Principle and Your Hedge Fund Career

March 7, 2016

The Goldilocks principle states that something must fall within certain margins, as opposed to reaching extremes. As such, it is often associated with the search for life on other planets and explains the phenomenon of life here on planet Earth. In short, life is possible because Earth is neither too hot nor too cold, nor is […]

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