Hedge fund managers looking at shrunken bonuses this year

Discussion in 'Wall St. News' started by dealmaker, Dec 29, 2018.

  1. dealmaker



    Hedge fund managers looking at shrunken bonuses this year
    By Carleton English

    December 28, 2018 | 5:45pm | Updated

    Bill Ackman's Pershing Square hedge fund is down 9.3 percent for the year. Getty Images
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    Hedge fund managers are going to get hosed this bonus season.

    Stock pickers at top hedge funds will see their bonuses tank as much as 30 percent this year as a brutal market continues to slam them with client redemptions, according to CompIQ, a compensation advisory firm.

    The pain — which has forced a handful of prominent funds to shutter this year, including Highfields Capital, Tourbillon Capital and Criterion Capital — also lately has been felt by some of the biggest names in the business.

    Pershing Square Capital, led by Bill Ackman, which was up nearly 17 percent in September, was down as much as 9.3 percent earlier this week, according to a Dec. 24 update on Pershing Square’s website. David Einhorn’s Greenlight Capital, meanwhile, was reportedly down 28 percent through November, thanks to a bad mix of short and long positions.

    That’s not including the brutal selloff of the past few weeks — including the worst Christmas Eve ever for the Dow Jones industrial average — which has made this month the worst December for stocks since 1931.

    That’s bad news for the portfolio managers and other higher-ups who typically get their bonuses from their fund’s profits, according to CompIQ Chief Executive Adam Zoia.

    “Senior investment professionals are going to get hit hard,” Zoia told The Post. “There isn’t that much pressure to pay up because where is that person going to go?”

    With the average hedge fund down 2 percent through Nov. 30, according to HFR data, there’s not likely to be much of a profit pool to pull from. The losses will likewise hit hedge fund hiring, which is closely tied to confidence in the market, Zoia added.

    “This would not be a time when funds aggressively hire in their senior ranks,” Zoia said.

    While there are a few hedge funds doing well this year, the spread between the outperformers and laggards is the lowest it’s been since 2008, Morgan Stanley said in a note earlier this month.

    The top 5 percent of funds are up 13.3 percent this year, by the bank’s measure. While that’s much better than the bottom 5 percent, which are down 18.6 percent, it’s not the kind of outsize return that demands a fat bonus.

    Even Steve Cohen, who returned to the industry earlier this year following a two-year ban by the Securities and Exchange Commission over insider trading allegations, warned last month that a bear market could be coming.

    Cohen said it was “actually not hard” to raise $5 billion in outside money for Point72 this year but said recent market conditions have him feeling somewhere between “comfortable” and “uncomfortable.”

    Weak returns aren’t the only thing plaguing the industry. Investors have pulled $15 billion out of the $3.2 trillion industry this year, according to an eVestment report.

    “It’s safe to say that, in aggregate, investor sentiment toward the industry is negative,” the report said, noting that 59 percent of hedge funds have had assets yanked.

    Research firm HFR notes that there have been 450 launches this year versus 444 liquidations. It’s better than being net negative, but does not signal robust interest in the industry.

    The one bright spot is pay for lower-ranked, less-specialized employees. With the unemployment rate standing at 3.7 percent — its lowest level in nearly 50 years — funds have to compete for junior-level and back-office talent, Zoia said.

    Bonuses for these employees often come from the fund’s management fee, he explained, so they’re less impacted when a fund delivers weaker performance.

    And because these employees can transfer their skills to banking, private equity and non-purely financial fields, funds have to pay up more to keep them.

    “The skills are less specialized before they become a hedge fund person,” Zoia said.

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  2. R1234


    and shrunken job prospects
  3. ironchef


    Bonus only down 30% from 2017! Not too bad actually compare to most of us mom and pop retails.
  4. Overnight


    The most painfully obvious question, in my mind, is why the fuck are these guys get bonuses for going negative? Why are they rewarding shitty performance?

    In a regular job, which 99.9999999999999999% of the American workforce is in, nobody gets a raise or bonus after a year of doing very very poorly, so much so that they cause a business to lose money. In fact, they usually get FIRED.

    Instead these guys get less of a pat on the back, but a pat on the back nonetheless? "Hey, great job trading desk, you guys lost 10% of our clients' monies! Super! Here's a bonus on top of your salary for that!"
    Last edited: Dec 29, 2018
  5. ironchef


    Can't get fired if your company has a guaranteed 2% fee on revenue.
    Here4money likes this.
  6. Overnight


    Unacceptable. UNACCEPTABLE!
  7. RedDuke


    The answer is ver simple. Most of them not good traders, and their hope is to ride bull Market winds. But they are AMAZING sales people, and that’s why.

    For example, John Meriweather and his team had a reputation to be able to sell ice to Eskimos.
  8. Are there hedge funds which charge zero management fees and their profits are 100% dependent on performance? This is a fairer arrangement for clients. Why should clients pay money managers when they lose our money?
  9. RedDuke


    I could not agree more with you. This is exactly how we ran our CTA program. Purely performance based off high water mark.
    helpme_please likes this.
  10. You work in a fund with high integrity and display fairness to clients. Is this a usual compensation practice among CTAs or are you more of an exception?
    #10     Dec 29, 2018