Hedge fund investment pros and traders should expect to get a 5 percent bonus for the year, according to a new report from Glocap Search LLC and Hedge Fund Research. Not bad, considering 2010 base salaries were, on average, flat from 2009 levels.
This is the second straight year that bonuses will have increased. Last year, the investment pros enjoyed a roughly 15 percent increase.
Broken down, the numbers do seem to be pretty impressive.
A senior trader at a small and mid-size fund with what HFR calls “middle performance” stands to receive a $365,000 bonus.
A portfolio manager at a small fund with top performance is likely to receive a $1.23 million bonus while a PM at a larger fund that did very well stands to receive closer to $4.85 million.
Even a so-called “idea generator” at a large fund with middle performance should anticipate receiving $1 million.
This is good news for real estate agents in the New York City metropolitan area, which count on hedge fund bonuses to fuel sales of over-priced apartments and weekend getaways. The jewelry trade is no doubt happy to learn this news as well.
But, between you and me, this is pretty boring stuff. Sure, journalists still place their decimal points much further to the left than hedge fund pros and I can actually say the only bonus I ever received was a tie, which I tried to trade for a small box of Godiva chocolates which were given to the women in the office at which I was working at the time. (There were no takers.) But, a bonus of less than $5 million for a top performer at a large firm? That’s chump change — a rounding error — for their bosses.
When it comes to hedge fund compensation, don’t even start talking to me until you get to nine figures.
As the person who puts together AR’s annual ranking of the highest earning hedge fund managers — I have been doing a variation of this ranking for a number of publications for the past 25 years — I have been desensitized.
It has gotten to the point where anything under $100 million sounds like an under-achiever. In fact, since 2004, the only year the cutoff to qualify for the top-25 earnings was under $100 million was in 2008, when a majority of hedge fund lost big bucks. (Keep in mind that to calculate the highest earning hedge fund managers, we include their share of the management and performance fees and gains on their own capital in the fund.)
In fact, last year the 25 top-earning hedge fund managers made a record $25.33 billion, beating the 2007 record of $22.3 billion. The $25.33 billion worked out to an average of $1.1 billion, which topped the $892 million average in 2007. However, this figure was skewed by the top seven hedge fund managers, each of whom made more than $1 billion last year. The median take of the richest in 2009 was closer to $500 million. See what I mean?
The number one spot was held by Appaloosa Management’s David Tepper, who earned $4 billion—a record sum—after racking up a 133 percent net return in his flagship Appaloosa Investment I fund, and 129 percent in Palomino, the off-shore version.
And this year is shaping up to be just as lucrative, if not better. Okay, no one figures to top Tepper’s $4 billion, since it doesn’t look like any of the richest guys is generating triple-digit returns. But, with most hedge funds operating in the black the cutoff to qualify should probably lay somewhere in the $400 million to $500 million range, well above last year’s minimum of $350 million.
And there is little doubt four or five managers will once again top $1 billion.
So, congrats to those portfolio managers and traders who receive a $4 million or $5 million bonus working for someone making probably closer to $500 million. Get back to me when you add a couple of zeros at the end.
