Trends in Hedge Fund Job Compensation

The figures from our annual Job Search Digest Compensation Survey are backed up by a corresponding survey by Alpha Magazine. In their 2009 report, Alpha notes that salaries range from $208,000 to $420,000, with bonuses starting in the hundreds of thousands of dollars and going upwards of several million.

The top earners in the industry are the stuff of legend. The 2009 Alpha Magazine Hedge Fund Compensation Report shows that several of the top-earning hedge fund managers in the world pulled in nearly $1 billion each in compensation. Making the top 10 list are:

1    James Simons   Renaissance Technologies Corp.               $2.5 billion 
2   John Paulson    Paulson & Co.                                                $2 billion 
3   John Arnold    Centaurus Energy                                          $1.5 billion 
4   George Soros    Soros Fund Management                            $1.1 billion 
5   Raymond Dalio   Bridgewater Associates                             $780 million 
6   Bruce Kovner   Caxton Associates                                         $640 million 
7   David Shaw    D.E. Shaw & Co.                                                $275 million 
8   Stanley Druckenmiller  Duquesne Capital Management        $260 million 
9 (tie)  David Harding   Winton Capital Management                  $250 million 
9 (tie)  Alan Howard    Brevan Howard Asset Management       $250 million 
9 (tie)  John Taylor Jr.   FX Concepts                                             $250 million 

An Industry in Flux

It’s no secret that 2008 to early 2009 has been a tough time for hedge funds. Pay is tied to performance, and as the financial crisis took hold last year, many hedge funds experienced their worst performance in over a decade.

The credit crunch and economic downturn led to a sharp drop in assets under management, due to trading losses and massive redemptions by investors. This forced many managers to sell off assets to meet redemption calls. Many hedge funds put a freeze on redemptions, further shaking investor confidence in the hedge fund model.

According to Hedge Fund Research, a Chicago-based tracking firm, the industry lost a record 18.3% in 2008 and shrank by some $525 billion by December. The overall number of hedge funds may have dropped below 9,000. Some industry experts predict a third of the hedge funds in existence at the start of 2008 will be gone by year-end 2009.

Moving forward, the hedge fund industry will probably have fewer funds, using far less leverage than in the past, and will be forced to charge lower fees. Two and 20 (management and performance fees) may become the exception, rather than the rule.

Lower fees for the firm will put downward pressure on hedge fund job compensation. Already, Alpha’s Hedge Fund Compensation Report for 2009 shows average total compensation for all hedge fund professionals was down by 16 percent from 2008. Cash bonuses have been slashed by as much as 24 percent, and prospects for a reversal of this trend are far off on the horizon.

Nevertheless, hedge funds are, and will continue to be, a place where the best and the brightest minds in the investment world will want to compete. The broader range of investment strategies and fewer restrictions than public money managers will still draw those who believe they have a winning investment philosophy.


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