From the category archives:

Compensation

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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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 Report?

If the number of hedge funds is shrinking at the same time hedge fund assets under management (AUM) rise, then it stands to reason that those firms remaining are becoming larger. More dollars spread among fewer firms can result in no other outcome.

In January 2017, hedge fund redemption slowed to $5.2 billion, a figure that represents about one-quarter of the outflows suffered in January 2016. Suffered may not be the correct adjective because we must also infer that many of these redeemed funds are being redirected to hedge funds with superior performance metrics. Otherwise, how is the growth of AUM to be rationalized?

How Will This Affect Hedge Fund Compensation?

For insights into the effect of larger firms on hedge fund compensation, we look to the 2017 Hedge Fund Compensation Report.

2016 HF Comp by Firm Size

 As the chart shows, mean compensation begins to trend lower in larger firms, those with fifty or more employees. One can expect investors to redeem from firms that have failed to meet expectations and invest in higher performing firms. However, that does not mean that these investment dollars will necessarily flow to the largest firms. Countless hedge fund firms, with fewer than fifty employees, boast stellar performance records. As a result, they will attract their share of investors.

Nonetheless, as underperformers shutter and the total number of hedge fund firms continues to decrease, the growth of even the smallest firms is all but guaranteed. If the trend toward lower compensation in larger firms, as shown in the chart above, were to continue, then it would be reasonable to speculate that hedge fund compensation overall will undergo a decline.

There are too many factors in play which could impact the industry, therefore it would be irrational to predict this outcome since we know the paradigm in which the above chart exists may be radically different from tomorrow’s.

What Is the Impact on Jobs?

We all understand that swings in assets under management do not necessarily mandate adjustments in staffing, but those who lose their positions because of firm closure could face increased challenges in their quest to gain purchase with another firm.

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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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Trump Defies Gravity and So Do Hedge Funds

February 22, 2016

Anyone following the primaries will recognize this phrase, used frequently in the context of Donald Trump’s foray into presidential politics. For example, in the recent South Carolina contest, the phrase was employed ubiquitously by talking heads in the mainstream media, who were largely incredulous regarding the margin of Trump’s victory in the wake of his […]

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