Hedge Fund Compensation Takes a Dive | Chief Investment Officer

UK-based hedge fund managers have seen a sharp decline in compensation over the last two years, according to salary data tracker Emolument.

The median base salary for director-level professionals fell from £120,000 ($199,000) in 2012 to £101,000 in 2013. This year, it has dropped again to £90,000.

“Over the last few years since 2008, hedge fund managers have been more willing to show flexibility when it comes to management fees, which is why base salaries have been eroding thus,” said Robert Benson, the data firm’s CEO.

Compared to base salaries, bonuses took an even deeper dive between 2012 and 2013, from £135,000 to £40,000. The median incentivized payout recovered somewhat over the last year to £85,000.

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Benson noted that hedge fund directors “are at a particularly volatile level when it comes to bonuses as they are deemed expensive by their firm but not so senior that they are absolutely essential to the business, therefore seeing their bonuses slashed dramatically.”

Macro hedge funds, one of the leading strategies by assets under management, has improved its performance in the year-to-date but is still suffering outflows, according to eVestment data. A total of $2.5 billion was withdrawn during July alone.

Still, industry-wide hedge fund assets remain above $3 trillion.

More than 10% of the market capitalisation of the S&P 500 index is now held by passive funds and index strategies, according to S&P Dow Jones Indices (S&P DJI).

The index provider said the amount of money directly indexed to the S&P 500 rose by “nearly 20%” during 2013 to $1.9 trillion. This included $282 billion in exchange-traded funds.

S&P 500’s collective market capitalisation is roughly $18.4 trillion, following an 8.7% rally this year, meaning passive strategies account for roughly 10% of the index’s total assets. However, the true amount of passive assets tracking the index is even higher as a further $67 billion is invested in products and strategies tracking S&P’s Composite 1500 and Total Market indices, which include exposure to the S&P 500.

Approximately $7 trillion of assets used the S&P 500 as a benchmark at the end of 2013, up 22% in 12 months, the company estimated.

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Morningstar columnist and researcher John Rekenthaler earlier this month claimed passive investing was “now the mainstream approach” as investors have increasingly lost faith in active management.

S&P DJI said $2.6 trillion was directly indexed to its range of benchmarks—of which there are more than 1 million.

In addition, S&P DJI pointed out that roughly $52 billion was now directly indexed to its factor-based indices through smart beta products and strategies. These indices include S&P 500 Low Volatility, S&P Global Intrinsic Value, and S&P 500 Dividend Aristocrats.