Wall Street year-end incentives are expected to be flat to slightly positive across all sectors for 2026, despite geopolitical turmoil and stress in the credit markets, according to a report from Johnson Associates, a financial services compensation consultant.
Johnson Associates predicted year-end incentives for traditional asset management professionals to increase up to 5%, largely benefiting staff at larger firms who have the benefit of scale and diverse products.
The firm projected flat-to-low bonus increases for alternative investment staff, largely as fundraising challenges increase and exit pipelines are uncertain.
“I think certainly some of the gloss is off of private equity,” says Alan Johnson, founder of Johnson Associates. “If you were to go back five years, you would say everyone wants to work in a PE firm. The pay dynamic [was] clearly much better than anywhere else. Fast forward to today, … the pay dynamic is not clearly as good, and certainly banks and others are paying a lot more than they did, so that dynamic has changed.”
The slowdown in exits and fundraising has implications on compensation—and some professionals may not realize it also affects carried interest.
“You wonder at some point—are those funds actually going to get a decent return to their investors, or carry?” Johnson says. “Obviously. the hurdle of 8% [returns before managers earn performance fees or carried interest] compounds annually, the management fees have to be added back, I think for the first time in a long time, we’re going to have funds that end without paying any carry, which will be a real shock.”
The firm expects year-end compensation for private credit professionals to fall between 2.5% and 7.5% from 2025 levels, as concerns around the asset class create fundraising challenges and lower returns. The firm noted wide variation within hedge fund compensation, which Johnson Associates projects to increase between 2.5% to more than 10%, largely driven by strong inflows into the asset class from limited partners concerned around alternatives.
Additionally, hedge funds are in a talent war for star portfolio managers and elite quant talent, driving up compensation and, for some, resulting in bonuses in the tens of millions.
“I think [hedge funds have] benefited from the slowdown in private equity. I think a lot of clients—pension funds, wealthy investors—feel overexposed to private equity, and that has benefited two sectors,” Johnson says. “One is hedge funds, if [investors] say, ‘I am in the major alternative asset classes, I’m already overweight to private equity, so I’m going to shift some of my portfolio to hedge funds.’ The other beneficiary from the slowdown in private equity is secondaries.”
Professionals in secondary market sales of private asset stakes are expected to see bonus increases of 5% to 10%, as more LPs tap the secondaries market to offload alternative investments, the firm wrote.
Additionally, Johnson Associates projected year-end bonuses for different asset classes:
- Infrastructure: flat to 5%
- Large private equity: flat to 5%;
- Real estate: flat;
- Mid/small private equity: flat; and
- Venture capital: flat.
The firm also reported investment banks drove the highest compensation increases, with advisory and equity underwriting staff anticipating compensation increases between 10% and more than 20%.
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Tags: compensation, Johnson Associates