Thursday, March 5, 2009

The End Of The Hedge Fund Compensation Bonanza

Everyone knew it was going to happen just not when. The when is now, according to Jon Pierson president of recruiting company 10X partners as quoted by Hedge Fund Alert. Latest market data indicate that the base salaries for portfolio managers working for medium hedge funds in the $300-$500 million ballpark, have dropped by almost 50% from $300,000-$350,000 to $175,000-$200,000, and even veteran PMs are seeing their base cut.

Additionally, performance pay will be whacked too: while PMs may not make any money at all if their books or funds have lost money (great to know if you are raking in $$$ on those shorts while all your colleagues are perma bulls and about to scuttle your fund), their percentage of the fund's performance fees (assuming you don't have a Citadelesque 100% to climb before you hit your high water mark) will be cut drastically and much better performance will be needed to even get back to historical payoff levels. Lastly, if PM's previously counted on getting 1% on the management-fee of the overall fund, this number will now be 0.50% and even 0.25% in most cases. Oh, and about those guarantees and signing bonuses... history.

So if you are a fund that is so low under the high-water mark that you will likely not earn performance revenue for years how do you hire talent - well you simply start offering "points" or "ghost shares", essentially a cut of future "profits" in lieu of a discretionary bonus, and pray the potential hire won't bitchslap you.

And if you are an unemployed PM what do you do? The most sought after positions are for PMs who have experience in liquid strategies, long/short equity, global macro, high frequency trading and distressed debt analysts. Or alternatively you can go work for boutique broker/dealers. Only problem is if you specialize in CDS, as no boutique banks have the balance sheet to trade credit derivaties so at best you will be stuck pushing 2-3 million of some garbage bonds to naive retail investors and praying for a wide bid/offer spread. Sphere: Related Content
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