Money management incentive compensation expected to rise — report

With market appreciation and positive inflows boosting assets under management for traditional money managers and hedge funds thus far in 2014, industrywide incentive compensation is expected to rise, said a new report by Greenwich Associates and Johnson Associates.

The report projects that, on average, incentive compensation at traditional money management firms will increase between 5% and 10% in 2014, with incentives for equity strategies outpacing those for fixed income. Salaries are projected to increase 3% to 3.5%, including merit and promotional pay.

Incentive compensation among hedge funds, meanwhile, will vary much more widely, reflecting performance volatility from strategy to strategy and firm to firm.

Employees at underperforming hedge funds can expect to see incentive compensation that is flat to down 5%, while incentives at better performers are projected to increase by up to 5% and perhaps higher for top performers on average.

“These ongoing positive trends are making asset management more appealing as a career choice for financial professionals, relative to a sell side that is still plagued by reduced compensation on results, intense regulation and somewhat diminished social status,” the report said. “Nevertheless, job turnover rates remain near historic lows, despite a modest pickup in hiring over the past year.”

Data from this report was collected by Greenwich Associates through interviews with more than 1,000 financial professionals at investment management firms, mutual funds, hedge funds, banks, insurance companies, government agencies and institutional investors, as well as users of foreign exchange at large corporations and financial institutions.

Although the report predicts that the money management industry will have a strong year overall in 2014, this still could be moderated by current events or future events. The industry will continue to focus on cost management and is expected to continue growing into 2015.