Institutional Investor's Alpha Magazine - April 2008 - (Page 62)

Hedge Fund Compensation Report but a higher-than-usual percentage of proﬁts — as much as 10 percent for an individual on the return from his or her portfolio. “Many people are jumping at that,” he adds. Wall Street proprietary traders have historically been reluctant to join hedge fund ﬁrms as employees rather than as partners because they fear being left short on the compensation pie. They may have reason to be concerned: Ownership matters. Median total compensation for a managing partner at a hedge fund ﬁrm in 2007, according to our survey, was $1.2 million. For a director it was $357,000. “People on a proprietary trading desk at an investment bank can make at least as much money as they would in the same role at a hedge fund if they are not a founder,” says Adam Zoia, founder and managing partner in charge of the hedge fund and private equity business for recruiting ﬁrm Glocap Search in New York. Since last fall, layoffs have been rampant at Wall Street investment banks, however, and unemployed talent abounds. But there are still hedge fund jobs to be had. Lynn Tidd, a partner at executive recruiting ﬁrm Russell Reynolds Associates, says a marketing director with 15 to 20 years of experience at a top-tier hedge fund ﬁrm can expect to earn 15 to 50 percent more than a counterpart at a traditional long-only asset management shop. Debra Brown, another Russell Reynolds partner, puts base salaries for traditional money management marketing executives in the $200,000 to $350,000 range and says hedge fund counterparts have comparable base salaries but can earn far more in bonuses. Rank-and-ﬁle hedge fund employees can certainly do well, too. The average associate last year made $277,000, though one at an activist fund who responded to our survey earned nearly $1.4 million, of which $1.2 million was a cash bonus. Simon, the Long Ridge recruiter, says many hedge fund ﬁ rms have overhauled their compensation guidelines in recent years to stay competitive. Managers have tended to take one of two approaches, which helps explain the extremes in pay. The ﬁ rst strategy is to move Compensation for Business Management The true wealth at hedge funds comes from ownership. The president of a ﬁrm makes, on average, more than ten times as much as a senior vice president. Mean ($ thousands) TITLE Chairman President Managing Partner Partner Principal Managing Director Director Senior Vice President Vice President Associate Assistant/Associate Vice President 2007 $4,248 4,851 2,103 2,506 1,929 1,939 738 452 545 277 135 2006 $2,448 3,436 1,288 1,561 1,049 1,279 683 613 386 197 81 Median ($ thousands) 2007 $1,370 1,550 1,200 1,000 533 1,050 357 321 325 185 161 2006 $ 775 1,150 544 575 475 825 365 301 235 130 75 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. Methodology Alpha compiled its 2008 Hedge Fund Compensation Report based on the participation of more than 800 professionals at nearly 600 hedge fund management ﬁrms in 27 countries. We asked each participant to provide his or her salary, cash and noncash bonuses, and total compensation for both 2006 and 2007, as well as an estimate for 2008 earnings. Results were tabulated individually. Total compensation includes salary and cash and noncash bonuses. All the responses are conﬁdential and were checked for validity. The results were tabulated using only responses from professionals at single-manager hedge fund ﬁrms. Further results, as well as a breakdown of compensation by job title for fund-of-hedge-fund and multistrategy ﬁrms, are available at www.alphamagazine.com. This report was compiled by Associate Editor WeiQing Lu with assistance from Erinn Goldenberg, under the guidance of Director of Research Operations Group Sathya Rajavelu and Senior Editor Jane B. Kenney. toward paying discretionary bonuses based mostly on overall fund performance but secondarily tied to individual investment team results. The second is a more eat-what-you-kill scheme based almost entirely on individual performance, which is best associated with ﬁrms like the Stamford, Connecticut–based SAC Capital Advisors ($16 billion in assets under management). Such arrangements can be lucrative: SAC charges a performance fee of as much as 50 percent for some funds. Midlevel investment professionals are likely to be better compensated at Hedge Fund 100 ﬁrms than at smaller shops. The average total pay for a senior analyst at a Hedge Fund 100 ﬁrm in 2007 was $1.3 million; at smaller outﬁts it was $824,000. The difference in pay at big and small ﬁrms is even starker for those in jobs that are not involved directly with investment. Hedge Fund 100 marketing directors received, on average, a total compensation package of $3.6 million in 2007. The average at other ﬁrms was $801,000. This could be a tough year for hedge fund professionals of every stripe. Colvin, the Balyasny vice chairman, predicts fewer institutional dollars will ﬂow into the industry. “I expect the spigot will be turned off,” he says. But a bad year doesn’t always stop a firm from trying. D.B. Zwirn & Co., the New York–based hedge fund operation that said in February it would close its two main funds after investors pulled more than $2 billion, is already out raising a new fund. It’s a classic retrenching that illustrates what drives hedge fund compensation. The two funds were so far below where they needed to be to earn the all-important performance fee that rather than trying to scrape back, it was easier just to admit defeat and start all over again. 62 • 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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