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Rise in demand for hedge funds fails to benefit managers

Date: Wednesday, November 25, 2009
Author: Shveta Pathak, Business 247

Compensation for regional fund managers, which declined an estimated 50 per cent in 2008, has failed to pick up in spite of the continued growth in performance that hedge funds have seen this year, industry players told Emirates Business.

Hedge fund managers' compensation depends on portfolio performance, and with 2008 being one of the worst years for hedge funds, compensation declined too. "In 2008, [fund managers'] compensations went down by almost 50 per cent, in the region and globally," said Kamal Fayad, Fund Manager and General Partner, Evolvence Mena Hedge Fund.

"It would be a decline in compensation in most cases in spite of growth in performance this year," said Haissam Arabi, Chief Executive Officer and Fund Manager, Gulfmena Alternative Investments. "This is because of the high water-mark protections they offer to investors."

While the drop in compensation has been a global phenomenon, regional fund managers have been on the receiving end especially because they are paid comparatively less than their global counterparts.

Globally, hedge fund returns are up 15 per cent year-to-date, the Credit Suisse Tremont Hedge Fund Index reflects. Mena hedge funds, as per estimates, are up by more than 10 per cent this year.

What bothers fund managers in this region is also the wide differential that exists in the compensation they get compared to their global counterparts. "In terms of structuring, compared to other markets, fund managers here are paid much lower," said Arabi.

Lower compensation is attributed to the relatively smaller size of the portfolios, and the shorter track record of the managers, since the regional hedge funds industry is only three years old.

"On average, Mena fund managers' compensation is lower than their global counterparts but that is largely explained by smaller-sized funds, and generally a shorter track record for most managers as this remains a nascent industry in the region," said Hedi Ben Mlouka, Managing Director, Duet Group.