It’s hardly a surprise that compensation will be down this year — the question is by how much. According to compensation consultant Johnson Associates, incentive pay could fall by a quarter at asset management firms.
Johnson’s latest projections have 2020 incentive compensation at traditional asset management declining by 20 to 25 percent. The pay cuts come as assets under management have fallen across the board, with investors fleeing stocks and bonds and rushing into money market funds or cash.
Hedge funds, whose average performance is down less than the overall markets, have also suffered asset declines. Their incentive compensation is expected to be down between 15 and 20 percent this year from 2019. Johnson noted that while macro and event-driven funds have been able to capitalize on the market impact of the pandemic, most strategies have taken a hit. Assets are at a multi-year low, according to the firm.
Private equity, which has the highest paid professionals in asset management following rapid growth in recent years, will also undergo pay cuts. Johnson Associates expects large private equity firms to cut incentive compensation by 5 to 10 percent, compared to 2019. Small and mid-size firms are expected to cut incentive pay by 15 percent. The consulting firm said the firms with large new funds will have capital and flexibility that the smaller private equity shops do not.
Wealth management firms have also suffered from asset declines, as well as a drop in fees as investors have de-risked their portfolios, according to Johnson. The compensation consultant expects incentive pay to fall by 20 to 25 percent as a result.
Still, Johnson Associates said that there may ultimately be wide variations in pay between stronger and weaker firms. Pay will also be significantly affected by infection rates and the rate at which economies are reopened.
The asset management industry has been facing headwinds for years, but many of these problems have been masked by a bull market that started in 2009. “[The] pandemic magnified ongoing challenges of many firms,” the consulting firm said in its report.
Johnson expects compensation of management and other staff to fall by 25 to 30 percent at investment and commercial banks. The decreases may be even sharper if boards of directors demand more scrutiny of pay to avoid headline risks at a time of record-level unemployment.
Compensation for staffers in investment banking advisory will fall by 20 to 25 percent, according to Johnson Associations, while incentive pay for underwriting jobs is expected to decline by 10 to 15 percent.
Still, the volatility of 2020 has brought some good news in banking. For both equities and fixed income sales and trading professionals, incentive compensation should rise by 15 to 20 percent.