Asset management professionals are projected to see their base salary levels increase 3.5 percent year-over-year from 2011 to 2012 while incentive pay is expected to rise from zero to 10 percent during the same period, according to a new study on compensation from Greenwich Associates and Johnson Associates.
“Those results reflect an industry that, like the economy and financial markets in general, is slowly regaining strength but lacks conviction and awaits a more robust recovery,” commented Greenwich Associates Analyst Kevin Kozlowski in the firm's release summarizing the research.
The study on U.S. asset management compensation breaks down compensation results for traders, head traders, portfolio managers and analysts working in fixed income and equities for traditional asset management firms and hedge funds.
Traditional Managers vs. Hedge Funds
The evolving trends in compensation could widen the gap between traditional asset management firms and hedge funds, in which the latter remain most flexible in setting compensation packages, Greenwich and Johnson Associates notes.
In 2011 hedge fund professionals earned 1.8 times the amount taken home by their counterparts in traditional asset management firms. That differential is down from 2010 when hedge fund professionals out-earned professionals of traditional management companies by 2.4 times. For equity professionals, the pay differential between hedge funds and traditional firms widened over the period from a state of rough parity in 2010, wrote Greenwich in its research summary.
In the short-to-medium term Greenwich and Johnson Associates do not expect an increase in the differential compensation between hedge funds and traditional firms. However, certain hedge fund strategies have experienced poor performance in 2012, a result which could negatively impact the incentive-weighted compensation of investment and trading professionals employed by funds using these strategies.
Fixed Income vs. Equities
Though buy-side equity professionals out-earn their counterparts in fixed income on average, incentive growth in fixed income is projected to outpace that in equities in 2012 due to the flow of funds into fixed income and the uneven performance of equity funds. In equities, buy –side professionals can expect the base salary in 2012 to be combined with incentive compensation that is flat to just five percent higher than 2011 levels, reports to Greenwich. Fixed income professionals can expect slightly stronger growth in incentives, with increases projected between 5 percent and 10 percent from 2011 to 2012.
Demand for fixed income talent is going to continue to exceed demand in equities for as long as current market conditions of historically low-interest s and start and stop economic recovery remain in place. However, when an economic recovery begins to gain steam hiring and compensation growth should even out as equity professionals see pay levels climb in step with stronger inflows and overall AUM growth.
Meanwhile, captive asset managers are subject to a range of regulatory edicts aimed at reining in risk and “excessive" compensation levels at parent banks and sister investment banks. Among the rules affecting employee compensation at captive investment management firms are mandates for high rates of deferred compensation and claw backs. Together with the balance sheet and performance troubles of some major banks and scrutiny of large financial services companies, these compensation measures have decreased the appeal of captive firms as employers for buy side professionals.