Year-end bonuses to climb by five per cent, report suggests

Date: Monday, November 8, 2010
Author: Emily Penyman,

The 2011 Glocap Hedge Fund Compensation Report says this marks the second consecutive year that bonuses increased since 2009, when they rose about 15 per cent on average above the depressed levels of 2008.

Despite the increases over the past two years, overall compensation is still below the peaks reached by the industry in 2007.

Adam Zoia, chief executive at Glocap, says that although most funds are not being as aggressive as they were in 2007 and the first half of 2008 in terms of their expansion, they are also clearly out of crisis mode.

In addition to rising compensation, hiring has increased and performance has been stable. Zoia says fund marketers and compliance professionals remain in particularly high demand and their compensation experienced the largest percentage increase in 2010.

“2010 represented a return to normalcy for the hedge fund industry,” adds Zoia.

Along with the increases in compensation, overall assets under management in the industry have recovered and more funds are above their high water marks, meaning the total income earned by the industry has increased over last year.

The increase in total income explains why overall compensation has risen despite the fact that, on average, funds will likely earn a lower return this year than last.

Ken Heinz, president of Hedge Fund Research, says that with a gain of greater than 3.5 per cent in September 2010, the hedge fund industry, as represented by the broad-based HFRI Fund Weighted Composite Index, finally emerged from the performance drawdown which began in October 2007.

The drawdown was not only significant in magnitude, but in duration; the decline lasted for 16 months which means the drawdown spanned across and impacted three calendar years of performance and compensation structures.

“Hedge fund compensation in 2010 is not exclusively about management and incentive fees, but also about duration, liquidity, transparency, and retention, as well as operational and organizational efficiencies," says Heinz. "As the hedge industry continues to grow and evolve, the compensation model which defines the fundamental economic relationship between investors and fund managers will continue to evolve with it.”