In a move mirroring their cousins in the investment banking world, hedge funds are entertaining the idea of deferring bonus payments to take place over longer periods of time.
A greater portion of the typical hedge fund employee’s compensation – as much as 50 percent – may be paid out over longer periods of time, to better align that employee’s interests with those of the fund. So says Adam Zoia, chief executive of the executive-recruiting firm Glocap Search, in an article by Fins.com.
What’s more, hedge fund investors are rethinking their relationship with hedge funds, as well. Some are pushing for incentive fees to be based on a multi-year calculation rather than one stellar year. Others are pushing for clawback provisions that would yank back fees already paid if performance slips. Or they’re proposing 3-year rolling incentive arrangements that require certain targets to be met before incentive fees are paid out.
Either way, the pain of 2008 will likely have a lasting impact on how hedge funds set up their compensation agreements with both investors – and employees.
After taking a nosedive in 2008, hedge fund compensation at U.S. funds has begun to inch up again, according to a new survey from Glocap Search and HedgeWorld.
Total compensation, including salaries and bonuses, moved up by 7 percent in 2009 for middle- and bottom-performing funds, and by 2 percent at top performing funds. This pales in comparison to the 17 percent drop in total compensation for bottom- and middle-performing funds and 7 percent drop at top performing funds in 2008, but it’s a step in the right direction.
According to the Glocap survey, mean total compensation peaked in 2007, and ranged from $551,000 for bottom-performing funds to $931,000 for top-performing funds. Of that peak, roughly two-thirds of compensation came in the form of bonuses. Employees at top-performing funds typically earn a greater percentage of their total compensation from bonuses, while base salaries average about the same, $220,000, for both groups.
Hedge fund job hiring is picking up as well, according to Glocap, which reports a “flood” of new search activity.
Despite the downturn in the markets, hedge fund managers are still well represented in the annual Forbes 400 list of the richest Americans. Fifty-one members of the billionaire’s club are involved in the hedge fund or private equity business, including 17 in the top 100.
A summary of the Forbes list analyzed by finalternatives.com shows legendary global macro hedge fund manager George Soros in 15th place, with an estimated net worth of $13 billion. Other leaders include buyout specialist Carl Icahn in 22nd place with $10.5 billion, Ronald Perelman in 23rd place with $10 billion, Renaissance Technologies’ James Simons in 29th place ($8.5 billion), John Paulson in 33rd place ($6.8 billion), SAC Capital Advisors’ Steven Cohen at number 36 ($6.4 billion) and Steven Schwarzman of The Blackstone Group in 50th place.
The article notes that the past year was only the fifth in history when the richest Americans have actually lost money. You can see the entire ranking of alternative investment managers who made the Forbes 400 list at finalternatives.com
