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…