Hedge Funds Drive Loan Investor Pay Higher

The emergence of hedge funds in the loan market has driven compensation for leveraged loan investors higher, as bonuses at some firms dramatically increased. Pay across the board for loan and fixed-income investors rose last year, but loan pros at hedge funds saw the biggest rise and took home the most moolah, according to Greenwich Associates' study of the U.S. fixed-income markets (see charts, page 7). "Fund managers that are handling riskier investments are paid better," stated Melissa De Vries, manager of institutional marketing with Greenwich.

While the riskier investors may be driving the numbers up, almost all leveraged loan investors fared better in 2003 than 2002 after being relatively flat the prior year (LMW, 8/18/03). To be sure the past year has seen prices in the loan market hit record highs and significant inflows into the asset class through retail channels, CLOs and hedge funds. In the past year total compensation for leveraged loan portfolio managers increased from $585,000 in 2002 to $691,000 in 2003. "The strong fixed income markets are reflected in the salaries for 2003," De Vries added. Greenwich data shows increases of 10% for fixed-income investors generally with bonuses being the bulk of the increases.

The average compensation for loan pros at hedge funds increased to $778,000 in 2003 from $652,000 in 2002. At the funds/advisors, total compensation increased from $622,000 in 2002 to $653,000 in 2003. In comparison, distressed debt portfolio managers' compensation soared to $1,053,000 in 2003 from $694,000 in 2002. Interestingly, the trading volume has increased for almost all fixed-income markets except for distressed debt, which experienced a 30% decline. Leveraged loan trading volume climbed 15%. Loan investors can take heart though that they are among the best paid of the fixed-income group.

Greenwich interviewed 1,462 institutional investors in the fixed income market, and of that 106 were leveraged loan investors. This year Greenwich redefined the program and looked at leveraged loans rather than syndicated loans. The firm asks investors for two years worth of information.