Hedge Funds Foresee Banner Year, Big Bonuses

Hedge fund managers anticipate a 10 percent increase in total annual compensation, fueled by expectations of big year-end bonuses, according to a report from Hedge Fund Compensation.

The annual industry report, by a group that analyzed hedge funds, is based on data collected from "hundreds of hedge fund managers and employees."

Although the overall economy is recovering at a much slower rate, the hedge fund industry recovered in 2010 and 53 percent of survey respondents expect a raise in total compensation. The survey finds that the average projected pay for 2010 is $326,000 -- an increase over last year's number of just under $300,000.

Hedge fund professionals report that they expect their funds to significantly outperform 2009 returns. Last year 8 percent said they believed their funds' performance would be down 25 percent or more over the previous year -- this year, not a single respondent expects that level of decline. In fact, only 3 percent expect negative returns and nearly half expect double-digit return levels.

Along with the improved performance, these professionals anticipate much higher bonuses as a result. Top earners expect 80 percent of their 2010 cash compensation to come from bonus payments.

"There has been quite a bit of press regarding bonus payouts lately, however, they are by no means a sure thing. Fewer than one in five hedge fund employees have any portion of their bonus guaranteed," says David Kochanek, publisher of HedgeFundCompensationReport.com. "To increase the 'skin in the game' factor that investors are looking for, 12 percent also reported that they were required to invest some of their bonus back into the fund."

The link between fund performance and expected bonus was evident, but performance was by no means the only determinant. Those who expected their funds to perform positively but in only single digits, anticipated an average bonus of $214,000, more than those funds that provided double digit returns.

"Larger funds with a small number of staff have a decided advantage over those in similar sized groups in the recruiting process," says Kochanek. "These funds can demonstrate a clear business case for upside to candidates, giving these efficient teams a competitive edge in the war on talent."

HedgeFundCompensationReport.com is a division of Job Search Digest, a web-based career service that focuses on investment professionals. Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio