Income inequality has apparently touched even the $2.9 trillion hedge fund industry, a new report shows.
The widening performance gap between top-performing hedge funds and those at the bottom resulted in a similarly widening gap in compensation at these firms for the same level of professionals at similarly-sized funds, according to new data from the 2017 Glocap Hedge Fund Compensation Report.
For the year ending September 30, 2015, the top third of hedge funds returned 14.92 percent in aggregate, while the bottom third of funds lost 6.81 percent. By comparison, the top third last year returned 8.7 percent, while the bottom third lost 11.5 percent. For 2016, the hedge fund industry has returned 4.2 percent, according to HFR.
Not surprisingly, the compensation gap is greatest for upper-level managers and key investment professionals, whose compensation is more directly tied to the performance of their funds and their overall assets under management. For instance, a senior analyst at the top-performing funds can be expected to make 2.8 times more in total compensation than a senior analyst working for a fund in the bottom third. Last year this disparity was 1.5 times. Compensation variance increases as positions become more senior; portfolio managers at top-performing funds can expect a total compensation amount 6.6 times higher than those at the bottom-performing funds. Last year the ratio was 4.5 times.
Meanwhile, growing demand for quantitative talent has increased at hedge funds, who are increasingly recruiting candidates from Silicon Valley to fill these roles. These workers are accustomed to getting the bulk of their compensation from a base salary; consequently, this demand triggered an 8 percent increase in base salaries, the survey found. Some hedge funds reported base salary increases up to as much as 50 percent when recruiting from non-hedge fund pools.