Base salaries for money management professionals are projected to increase 3.5% in 2012 with incentive pay projected to rise up to 10%, according to a new study from Greenwich Associates and Johnson Associates.
The “relatively soft” salary increase can be attributed to two main factors, according to the study — salaries in the money management industry are already competitive and industry bonuses have “largely avoided the eye of regulators and the investing public,” meaning firms have had little pressure to increase salaries and harness bonuses.
Hedge fund professionals are projected to earn about 1.8 times that of people at traditional money management firms in both buy-side equity and fixed income, in line with the previous year, and are projected to remain fairly stable in the short and medium term.
However, traditional fixed-income professionals are making headway; in 2010, hedge fund professionals were making about 2.4 times that of traditional firms in the fixed-income asset class. Equity hedge fund professionals are projected to make about 1.85 times that of traditional buy-side equity professionals in 2012, nearly identical to 2011 numbers; traditional equity professionals actually made about 1.05 times more than hedge funds in 2010.
Incentives for fixed-income professionals are projected to increase 5% to 10% compared to only zero to 5% on the equity side. The study expects demand for fixed-income talent to outpace equities as long as interest rates remain low and market conditions remain uncertain. The mix among salary, bonus and deferred compensation remained stable from 2011 to 2012.
However, “captive” money managers — those owned by large financial service providers — will see compensation affected in the foreseeable future by fluctuations in incentives and possible clawbacks, decreasing the appeal for buy-side professionals. According to Greenwich, incentives at captives could be determined by the parent's performance and not necessarily the individual professional or money management business. Captives currently face a significantly higher amount of regulatory scrutiny than independent and private firms.
“The regulations impacting those investment banks are going to trickle down to the subsidiaries and children of the parent (bank),” said Kevin Kozlowski, a securities and trading analyst at Greenwich, in a telephone interview.
Mr. Kozlowski expects private and independent money management businesses to align more in compensation structure with ones owned by parent banks in the next few years as clients increasingly scrutinize what managers are doing. “The industry itself has been under an intense amount of scrutiny,” Mr. Kozlowski said.
The demand for specialized products also continues as the amount of U.S. institutions using core mandates declined to 44% in 2011 from 67% in 2010; core-plus mandates fell to 24% from 38%.