Study: Money Manager Compensation to Drop

(August 15, 2011) — Consulting boutique Johnson Associates predicts that money manager incentive pay is “down considerably” from three to six months ago.

While money management incentive compensation will increase up to 10% at some fixed-income firms this year and up to 5% at some equity, hedge fund, and private equity firms, the firm said, the projections have dropped from up to six months ago when projections ranged from 10% to 15%.

The consulting firm’s report, which includes data from 30 to 40 asset management firms, public records and client data, follows sharp swings in stock and bond markets, raising questions about the overall health of the financial industry worldwide.

According to the report, while asset management and alternatives businesses are generally stable, the results are contingent on volatile market conditions not fueling another 2008 crisis. The report noted that year-over-year growth in AUM levels from market appreciation and net inflows place upward pressure on incentives, while low interest rates continue to hinder fees. Additionally, the firm noted that hedge funds surpassed their high-water marks with asset inflows, but a solid first quarter was eroded by second quarter declines.

Late last year, Johnson Associates revealed that compensation in the US asset management industry was rebounding after two less lucrative years. According to the November 2010 report, the average compensation for senior hedge fund managers focused on fixed-income rebounded from the lows of the financial crisis to record levels. The findings pegged projected average total compensation for senior fixed-income professionals at hedge funds at $1.1 million, with investment professionals at hedge funds experiencing by far the largest declines. “Hedge fund equity professionals in 2010 are earning about half what they took home in the boom days of 2007 — and less than their counterparts at traditional asset management organizations,” Greenwich Associates’ Director of Institutional Marketing Jennifer Litwin said in a statement.

Meanwhile, the study showed that equity and fixed-income professionals at traditional asset management firms experienced far less volatility in compensation levels. For example, average compensation levels among senior fixed-income professionals at traditional funds and advisors declined by about 5% between 2007 and 2008 and then jumped 53% from 2008 to 2009.