As we enter spring, there’s a different feeling in the air – and it’s not just from the sunshine. The appetite for Private Equity and Private Credit funds remains high, and hedge funds gained 2-3% in Q1 (with long/short equity leading the pack – something we haven’t seen for a while…) In this Newsletter, we tackle year-end bonuses and how compensation has been affected by deferral policies. We also delve even further into how firms can attract and retain employees via perks and corporate culture. In addition, we discuss the growing trend of in-house capital markets teams within PE funds, and on a lighter note, we share our views on resume screening.
We hope you find it interesting and informative.
The Odyssey Search Team
Results of Q1 2017 Hedge Fund Investment Professional Compensation Survey
Hedge funds ended up being more generous to their front-office staff in 2016 than expected. Negative news surrounding the industry had weighed on expectations. Our Fall 2016 Survey of Investment Professionals’ Compensation included expectations for year-end bonuses, and we highlighted that people were on average expecting a 7% year-on-year decrease. In the end, the results of our Q1 2017 Compensation Survey with actual bonus numbers show that the average year-end 2016 bonus was $316k vs. $308k for 2015, a 3% increase. As background, Odyssey’s Q1 2017 Hedge Fund Investment Professionals’ Compensation Survey was compiled from over 300 data points stemming from hedge fund analysts submitting actual year-end 2016 data. Digging into the numbers further, three factors were revealed to be paramount in maintaining the year-end bonus levels.
1) Performance: Analysts at firms that were ‘up’ in 2016 did considerably better than Analysts at struggling firms. Those in the black received on average a $370k bonus vs. bonuses of $241k for those whose firms that were ‘down’ (a 54% difference in bonus size). Given that the average fund was up in 2016 (about +3.5% according to Eurekahedge) more firms were either producing performance fees or had at least closed the gap on their high water marks.
2) Fund Size: Bigger is better. Regardless of performance, Analysts at firms $5B in AUM received $382k vs. $328k for those at firms with $1B in AUM (a 17% difference).
3) Experience Level: Those with less than 5 years of buy-side experience saw much bigger jumps in their year-on-year bonus numbers, compared to more tenured staff (as chart below shows). It’s certainly easier to increase junior comp on a % basis, given the fewer dollars involved. But this finding might also have to do with the relative demand for juniors across the current investment landscape.
In our survey we also asked analysts how satisfied they felt with their comp. We used a scale of 0 to 100, with 0 being ‘extremely unhappy’ and 100 being ‘Tom Cruise on Oprah’s couch.’ As the chart below shows, it is the Juniors who reported feeling the most Tom Cruise-ish, likely due to the high percentage increase, as well as the fact that a 6- figure bonus is a lot of money for a 20-something to take home.