What Hedge Fund Managers Make in a Bad Year

Investors are on track to lose money in hedge funds this year—and pay managers an average $1 million each for their services, recruiting data show. 

Hedge fund managers’ compensation is likely to drop alongside performance this year, according to recruiting firm Glocap and Hedge Fund Research (HFR).

Annual compensation for managers of mid-sized portfolios—including base salary and estimated year-end bonuses—was projected to average $950,000, a decline of 8% to 11%. Chief operating officers for hedge funds managing between $1 billion and $5 billion would see a reduction in compensation of 4%.

Glocap and HFR attributed these decreases to volatile third-quarter returns for the sector, which will hit performance incentives. Hedge funds overall lost 1.6% in the year ending September 2015, according to the HFR weighted composite index. Total industry capital fell by $100 billion in the third quarter alone.

But America’s yacht sellers need not panic. The best performers among mid-size funds can expect double the average compensation—nearly $2 million—the report stated.

“Following several years of steady gains, overall industry compensation has been mixed in 2015, varying widely by fund performance, size, seniority, functional role and specific qualities of individual contribution to firm growth and expansion,” said HFR President Kenneth Heinz.

Furthermore, Glocap and HFR predicted that improving nationwide employment trends will partially offset weaker performance-linked pay via rising base salary across functional roles.

For example, entry-level analysts would likely see bonuses drop 5%, but salaries climb nearly 9% for total earnings of $360,000 on average. The result: Fatter pay packets than in 2014, despite a weak year for limited partners. Analysts at top-shelf funds were expected to see compensation gains of nearly 6%.

Heinz said compensation structures will evolve to better align with the interests of investors and support operational, management, and infrastructure roles. Interest in and use of diversity policies for compensation has also increased in 2015, according to the report.

Anthonty Keizner, head of Glocap Search’s hedge fund practice, said that in light of lower performance—and therefore lower incentive fees—general partners will likely have to dip into management fees in order to compensate their teams.

“Even though it looks like many funds will end the year with flat performance, many employees will still receive sizeable bonuses in order to reward and retain them,” said Keizner.

Related: What Crisis? Fund Management Bonuses Approach 2007 Peak & Hedge Fund Compensation Takes a Dive