The 20 Rising Stars of Mutual Funds 2008 - (Page 9) however, may spend extra to bring the right people on board, he noted. Bonuses and Fund Performance Observers and fund managers alike see bonuses being tied more to funds’ performance, mirroring the hedge fund industry, in a trend that will continue to become more pronounced. There is a trend of hedge fund pay structures having more of an impact on other money managers, including but not limited to mutual fund managers, they said. The norm for hedge fund and alternative investment pay structures is a direct correlation to the fund’s performance—what is commonly referred to as sharing in the fund’s profits. Such a structure may include the fund manager getting a portion of the fund’s fees, said one observer. There is a trend of hedge fund pay structures having more of an impact on other money managers, including but not limited to mutual fund managers. tion, and by managers of indexed and ‘other’ portfolios, who earned $158,000, according to the survey. Broken down by years of experience, equities portfolio managers with more than 10 years experience earned an average of $499,000, followed by those with five to less than 10 years, who earned a total of $398,000 on average, and those with less than five years experience, who earned $205,000, the survey found. In the fixed-income realm, the numbers were $350,000 for more than 10 years, $210,000 for five to 10 years and $126,000 for less than five years of experience. For managers of indexed funds, the pay was notably less, even where they had more than 10 years of experience - just $190,000 on average. For five to less than 10 years, the figure was $135,000 and, for those with less than five years, it fell below six figures to $87,000. The International Landscape Compared with portfolio managers in Canada and the United Kingdom - the only other two of the total 11 countries for which the survey broke down types of portfolios U.S. managers made more across the board, except for U.K. fixed-income managers with more than 10 years experience. The most experienced fixed-income managers in the U.K. earned an average of US$437,000—more than the most experienced Canadian and U.S. fixed-income managers and also more than U.K. equities portfolio managers, who earned US$348,000. The U.S. ranked lower than most of the other countries in fund manager cash bonus eligibility, tied with Canada for seventh place at 90%. Canadian fund managers, however, were less likely than U.S. managers to receive non-cash longterm incentives. Only 32% stated they were eligible. Ranked in first place for cash bonus eligibility in the survey were the U.K. and Switzerland. Ninety-six percent of respondents from both countries stated they were eligible. Swiss financial services firms, however, were less likely to award non-cash long-term incentives. Only 35% of respondents there stated they were eligible for these, compared with 47% of those in the U.K. Long-term incentives are the most popular in South Africa, where 50% of respondents stated that they were eligible to receive them. They were the least popular in China, where only 17% indicated they could get long-term incentives. Australia ranked lowest for cash bonus eligibility, with only 86% of respondents stating they can receive such incentives. i MUTUAL FUND RISING STARS 9 In a survey by the CFA Institute of its membership, 27% of respondents said their bonus is driven by their firm’s performance and 46% said it is driven by the individual’s performance. While the survey’s approximately 13,500 respondents represent a wide array of investment managers, including hedge fund managers and retirement plan advisors, the trend is seen as representative of the mutual fund industry. According to the survey, cash bonus eligibility remains high, with 90% of U.S. respondents in the survey stating they were eligible. Only 42%, however, stated they were eligible to receive what the survey described as long-term incentives, including non-cash bonuses such as share options. Peggy Eisen, managing director of the CFA Institute’s marketing and communications department, said the findings show strong ties between bonuses and how firms and individuals perform, and that way of approaching bonuses is not likely to change. Beyond firm and individual performance, 22% of respondents ranked the performance of their business unit as the key determinant in bonuses. Four percent of respondents said they were not sure on what their bonus was based. Compensation by the Numbers Compensation for U.S. portfolio managers varies greatly based on the type of portfolio managed, as well as the manager’s years of experience, according to the CFA Institute survey. Equities portfolio managers earned the most in 2006, an average of $456,000, including bonus and longterm incentives. They were followed by fixed-income portfolio managers, who earned $250,000 in total compensaJANUARY 2008
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