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Banks, Financial

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Categorized | Financial

Differences in hedge fund performance widen gap in portfolio manager pay

Posted on November 23, 2016

Portfolio managers at the top-performing hedge funds can expect to rake in $6.78m in pay this year, compared with about $740,000 in total remuneration for their counterparts at the lowest-performing funds.

The disparity in pay is the largest gap since 2008 and is being driven by a wider dispersion in performance by hedge funds this year, according to Adam Zoia, chief executive of Glocap, a recruitment company.

“As you get higher up the food chain, that differential gets greater,” said Mr Zoia. “We’re seeing more than 10 times the difference between the top and bottom tertile for the most senior portfolio managers.”

Most of the difference comes down to bonus, with most managers making about $275,000 in base pay, according to data from Glocap and CompIQ, a pay tool, compiled from hedge funds with AUM of more than $4bn.

The pay scale will not please some of the US pension funds who have vocally redeemed their investments from hedge funds this year after complaining of the high fees that they had been charged for returns that did not outperform benchmarks.

But while several titans of the hedge fund industry have struggled this year and redemptions have outpaced inflows, some hedge funds have quietly had strong years.

The top third of hedge funds has returned close to 15 per cent this year while the bottom performing third has lost about 7 per cent, according to Hedge Fund Research. It is an improvement on last year, when the top third returned 8.7 per cent and the lowest third lost 11.5 per cent.

Senior analysts, a position below portfolio manager, are also seeing the difference in pay. A senior analyst at a top-third fund is likely to take home about $1.55m this year. That is 2.8 times more in pay than someone in the same role at one of the bottom performing funds, who may make about $500,000. Last year, the difference was only 1.5 times.

Those at the largest hedge funds who have not performed well this year are shielded to some degree because of the management fee hedge funds collect regardless of performance. Smaller funds are more reliant on higher returns in order to collect a performance fee.

“Trends in hedge fund compensation reflect an increasingly intense and competitive performance environment, not only within the hedge fund industry, but across traditional asset management and investment banking,” said Kenneth J. Heinz, the president of Hedge Fund Research, which worked with Glocap and CompIQ on the data.

Mr Zoia said that there is no shortage of job offers for those managers able to deliver strong returns and that news of job cuts in the industry is overblown.

Within funds, pay is also becoming more competitive, he said, with individuals at the same level seeing a wider range of pay based on their performance so funds can try to hold on to their best performers.

At the junior level, employees are likely to see modest raises, regardless of the fund’s performance.