The rest of this year is likely to bring “a greater dispersion” than ever before in pay and performance for hedge fund professionals, says Alan Johnson, managing director at compensation consultancy Johnson Associates. Many clients are already modeling lower pay levels, he adds.
“The average hedge fund pay incentives will be down 15% to 20%,” he says. “This will be noticeably down. But again, there will be a handful of winners.”
Hedge funds are unlikely to implement pay cuts now because they want to send a message that they are stable and secure, and because base salaries usually make up a small part of pay compared to year-end bonuses, Johnson says. Additionally, most firms are facing the “the double impact” of an already stressful business environment as well as the current Covid-19 situation, he says.
“It’s going to be a real balancing act for morale… It’s going to be really tricky this year,” Johnson says. “Giving a hug does not come naturally for most of these firms.”
There is likely to be greater movement across hedge funds this year to compensation models driven by profits and losses, as opposed to other factors such as recruitment or business development, Johnson says.
“There is a movement toward more objectivity and formula,” he says.
Some firms are also discussing if they need to have offices scattered across the globe if they have only a handful of employees in those locations, he adds.
“It’s going to be a year-end like no other for hedge funds,” Johnson says.
FundFire / April 29, 2020