Lower compensation seen at asset management firms - report

PUBLISHED : Friday, 20 November, 2015, 11:32am
UPDATED : Friday, 20 November, 2015, 11:32am

Asset management firms are expected to hand out 5 per cent less compensation to their traders and fund managers in 2015 from year-ago levels as recent market volatility has hurt investment returns, a report showed.

“This would represent a dramatic shift for an industry that had, until recently, experienced strong asset growth and a steady demand for talent,” research firms Greenwich Associates and Johnson Associates said in the report.

A global economic slowdown and a possible interest rate increase from the Federal Reserve in December have slowed money moving into these firms. Higher costs have also squeezed budgets, weighing on salaries and bonuses.

A decline in compensation is likely be seen at hedge funds and Wall Street banks as well, according to the report.

In 2014, bonuses at asset management or “buy-side” firms were flat to a tad higher than levels the year before, missing expectations for a 5 per cent to 10 per cent increase.

The average compensation for stock fund managers last year was about US$690,000, with 65 per cent in the form of bonus and the rest in salary. This was flat from 2013 levels, the research firms said.

Their bond market counterparts, meanwhile, earned 27 per cent less in 2014 at $504,000 with 60 per cent from bonuses. Their compensation has “held firm” annually at levels not seen since 2005, the firms said.

Most buy-side traders took home less than fund managers, but saw annual increases in 2014, according to the study.

Bond traders' average compensation rose to $325,000 with slightly more than half their pay from bonuses, while head stock traders' compensation grew to $637,000 last year but less senior stock traders saw a 4 per cent fall to $244,000, the report said.

Average compensation to bond research analysts rose 10 per cent to $318,000 in 2014, while stock analysts' compensation was unchanged at $414,000.

Fund managers and buy-side traders might face further declines in compensation in 2016.

“As performance lags and asset growth slows, we do not expect firms to alter compensation structures to deliver increases or even maintain current levels,” Francine McKenzie, a managing director at Johnson Associates, said in a statement.

While traditional asset management firms are expected to struggle as markets turn more volatile in a slow-growing global economy, the research firms said hedge funds may benefit from investors seeking higher returns, which should help buttress compensation for hedge fund professionals in 2016.