Hedge fund managers looking at shrunken bonuses this year
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.