Institutional Investor's Alpha Magazine - April 2008 - (Page 60)

Hedge Fund Compensation Report back to the level where it can charge 20 percent again, and managers may be required to reach into their own pockets to pay employees or risk losing them. The liquidity crunch and deleveraging of the markets have not played out fully, and many hedge fund managers think compensation will take a hit this year. “I expect, as an industry, comp will be down,” says Barry Colvin, vice chairman of $1.5 billion Chicago-based multistrategy hedge fund ﬁrm Balyasny Asset Management. “We have a rough year to go.” By this time last year, Colvin points out, many funds were reporting strong early results, and — even with the volatility of late summer — they did make money in 2007. The outlook has changed. In our survey we asked a broad range of professionals — everyone from marketing associates and junior traders to chief operating ofﬁcers and CEOs — how their 2007 compensation stacked up against what they made in 2006, as well as their expectations for 2008. The responses show a general resignation to the likelihood that their pay this year will drop. On average, CEOs expect a 32 percent cut in compensation and say their 2008 bonus will be off by about 38 percent from last year. CIOs responded similarly, expecting their bonuses to be down, on average, by 45 percent and their total compensation by almost 39 percent. The troubles in the credit markets actually proved a boon to some hedge funds last year. Brian James, former co-head of fixed income at New York structured credit firm Cohen & Co. and now a founding partner with Link Global Solutions, a New York–based recruiting and consulting ﬁrm, says many funds were on the right side of the meltdown. “Even within structured credit we saw people making a lot of money last year, more than they did in 2006,” James explains. “In credit generally, the funds that didn’t blow up experienced a lot of upside.” Even as the likes of hedge fund titans Steven Cohen, Kenneth Grifﬁn and James Simons added substantially to their already vast wealth, many little-known employees did well, too. The $24 billion London-based hedge fund ﬁrm GLG Partners, which went public on the New York Stock Exchange last year, reported in its annual earnings statement that it paid $810 million in employee compensation and beneﬁts, up from $168 million in 2006. The ﬁrm’s 349 employees include 125 investment professionals. Public filings from Sloane Robinson, a $15 billion London-based hedge fund firm specializing in emerging markets, show the beauty of hedge fund economics. In its ﬁscal year ended March 2007, the ﬁrm made about $400 million, mostly from its 15 percent performance fee (it charges a 1 percent management fee). Just over $4 million of that $400 million went to overhead, and most of the rest was divvied up among Sloane Robinson’s 14 limited partners. But had the ﬁrm broken even or lost money, there would have been no riches to share. According to the 2008 Alpha Hedge Fund Compensation Report, CEOs, on average, earned $3.8 million last year, up sharply from $2.5 million in 2006. The median CEO total compensation for 2007 was $1.3 million, up from $878,000 in 2006. Roughly one quarter of the chief executives who responded to our survey earned $10 million or more; 41 percent earned $500,000 or less. Wide disparities in compensation are equally common for CIOs, who are usually the second-best-paid hedge fund executives. The average 2007 total pay of CIOs we surveyed was $3.6 million, a 45.6 percent increase over 2006, with a median compensation of more than $1.0 million, up from $725,000. Overall, investment returns in 2007 were every bit as scattered as compensation. Chicago-based data provider Hedge Fund Research’s fund-weighted composite index Total Compensation Our Hedge Fund Compensation Report shows that it pays well to be an investment professional. Even senior traders generally earn more than chief operating ofﬁcers and CFOs. Mean ($ thousands) FUNCTIONAL TITLE Investment professionals Chief Executive Ofﬁcer Chief Investment Ofﬁcer Senior Portfolio Manager Junior Portfolio Manager Senior Trader Junior Trader Senior Analyst Junior Analyst Noninvestment professionals Chief Operating Ofﬁcer Operating Ofﬁcer Controller Chief Financial Ofﬁcer/ Finance Director Financial Ofﬁcer Chief Compliance Ofﬁcer Risk Management Ofﬁcer Risk Manager Chief Technology Ofﬁcer Investor Relations Ofﬁcer Marketing Manager Marketing Associate Business Development Ofﬁcer Legal/General Counsel IT Professional $1,232 473 351 869 596 693 1,592 760 941 909 830 121 1,242 1,060 512 $932 336 348 608 266 629 1,401 575 604 654 809 117 1,251 811 376 $560 230 166 500 230 500 1,545 330 300 500 402 152 675 720 505 $425 170 130 328 175 318 720 280 234 370 360 152 520 $3,784 3,596 2,170 694 1,633 221 891 254 $2,511 2,470 1,520 399 1,458 219 562 168 $1,321 1,043 889 336 395 200 498 190 $878 725 620 225 375 173 338 123 2007 2006 Median ($ thousands) 2007 2006 On the Web 500 245 Visit www.alphamagazine.com for more information, including compensation data by job title for fund-of-hedge-fund and multistrategy ﬁrms. You also can ﬁnd ranges of data for salaries, cash and noncash bonuses, and total compensation. Total compensation as reported for 2007 and 2006 includes base salary and cash and noncash bonuses; 2006 values are based on responses from the current survey, not the 2007 survey. 60 • INSTITUTIONAL INVESTOR’S ALPHA • APRIL 2008 http://www.alphamagazine.com

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - April 2008

Institutional Investor's Alpha Magazine - April 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Here to Eternity The Good Guys: Voice of Hope Cover Story: The Kings of Cash Where the Money Is Into the Light Interview: Proceeding with Caution Strategies: A Convenient Truth Alpha Bytes: Village Voice Unhedged: Commentary: No Time for Complacency

Institutional Investor's Alpha Magazine - April 2008

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