Incentive compensation, or bonuses, paid to professionals in the traditional asset management industry are expected to decline by 5% to 10% on a year-over-year basis in 2023, according to a report issued Tuesday by Johnson Associates, a compensation consulting firm.
Meanwhile, bonuses issued to hedge fund professionals are expected to range from no bonus to a 5% payment, while bonuses paid at private equity firms are projected to be flat over the prior year.
The "confluence of interest rates, economic uncertainty, bank collapses, and uneven performance across sectors" will make 2023 an "uneven and complicated year" in financial services, Johnson said in the report.
Bonuses for traditional asset managers will likely fall, Johnson said in the report, as clients shift out of higher-fee actively managed products to lower-fee passive equities, fixed income and cash strategies, thereby leading to lower revenue, profits and operating margins. Johnson also noted that inflows received by fixed income and multiasset strategies have been offset by equity outflows.
"Asset management incentives are trending downward despite the upward climb of equity markets," said Christopher Connors, vice president at Johnson, in an email.
Bonuses paid out at hedge funds will be flat to moderately higher due to market appreciation and modest inflows, but incentive payments at private equity funds are expected to be flat. Johnson said that while the largest private equity funds continue to dominate fundraising, small and midsize funds are facing challenges in fundraising. Moreover, private equity realizations are expected to fall and venture capital deals will decline significantly. In addition, continued high interest rates place a strain on buyout activity, Johnson added in the report.