Hedge Funds Lead Compensation Survey

Hedge fund managers continue to lead the way in terms of total compensation, weighing in at $1.2 million a year, according to Greenwich Associates' annual study of the U.S. fixed-income markets. The hedge fund group's average salary increased to $210,000 from $195,000 in 2003, but saw a slight decrease in bonus average, with respondents bringing in an average of about $1.04 million, down from $1.07 million in 2003 (see charts, page 10. For additional charts see the CIN Web site). "Overall, in terms of level, hedge fund fixed-income investors were the highest compensated, more so than any other firm," said Talley Leger, associate director, institutional research and marketing at Greenwich. "Even though they didn't witness much growth in overall compensation levels, they still remained the highest income earners."

Overall, U.S. fixed-income investors received an average salary increase of 3% to $150,000 in 2004; bonuses rose 10%, averaging $265,000 last year. On average, total cash compensation increased 8% to $415,000. "The overall theme for our results in 2004 was one of healthy gains across the board and that is consistent with the strength of the fixed-income markets," Leger said.

As flat as hedge fund manager compensation may have been, there was not any other group closing the gap. Employees at banks, investment advisors and mutual funds followed in step. Bank employees brought in about $395,000 in total compensation in 2004. "That is a big gap between [banks] and hedge funds, which are earning $1.2 million," Leger explained. "Something really drastic would have to change in order to close that gap. Could it happen? I guess so. Is it going to happen in the next year or so? Probably not."

There is, however, a big gap between what hedge funds earn on the salary side versus what its employees earn on the bonus level. "There is a lot less certainty for hedge fund employees as opposed to some other institutions, where you can rely more on salary than you could potentially at a hedge fund," he said.

For total compensation, banks were up from $355,000; fund advisors were up to $355,000 from $325,000 the prior year. Investment managers at insurance companies were up about $15,000 to $235,000 in total compensation. The three groups all had, on average, about a $5,000 increase in salary, but bonuses varied from an average of a $10,000 increase for insurance company employees to a $35,000 increase on the bank side.

Greenwich conducted a total of 1,164 interviews with cios, cfos, ceos, treasurers, assistant treasurers, portfolio managers, research analysts, head traders and traders between mid-February and mid-April 2005. In some instances, the charts do not include results where sample sizes were insufficient. The average tenure for participating investment professionals was 8.5 years, with over 50% of respondents having between two to five years of experience.