Fund managers can expect a raise this year, with base salaries projected to increase 3.5%, and incentive pay forecast to rise by up to 10%, according to a new study from Greenwich Associates and Johnson Associates.
The firm says the pay projections for asset management professionals indicates continued caution. “Those results reflect an industry that, like the economy and financial markets in general, is slowly regaining strength but lacks conviction and awaits a more robust recovery,” says Greenwich Associates analyst, Kevin Kozlowski.
The new study also says that while buy-side equity professionals are better paid than their counterparts in fixed income on average, incentive growth in fixed income is projected to outpace that in equities in 2012 due to the flow of funds into fixed income and the uneven performance of equity funds. It says that, in equities, the buy-side can expect the base salary increase for 2012 to be coupled with incentive compensation that is flat to just 5% higher than 2011 levels. Fixed-income professionals can expect slightly stronger growth in incentives, with increases projected between 5% and 10% from 2011 to 2012.
The research firms say they expect demand for fixed-income talent to continue outpacing demand in equities for as long as current market conditions of historically low interest rates and a start-and-stop economic recovery remain in place. “However, when an economic recovery begins to gain steam, hiring and compensation growth should begin to even out as equity professionals see pay levels climb in step with stronger inflows and overall AUM growth,” it says.
They also point out that captive asset managers are at a disadvantages in terms of compensation, as they are facing a range of regulatory reforms aimed at reining in risk and excessive compensation at their parent banks. “Among the rules affecting employee compensation at captive investment management firms are mandates for high rates of deferred compensation and claw backs. Together with the continuing balance sheet and performance troubles of some major banks and the ongoing public scrutiny of large financial service firms, these compensation measures have decreased the appeal of captive firms as employers for buy-side professionals,” it says.
As a result, the firms say that, for the foreseeable future, employees of captive investment management firms will see their pay affected by fluctuations in incentives, and possibly claw backs — primarily triggered by the overall performance of their investment banks and other units of parent banks.
“Elsewhere in the industry, demands from investors and consultants will continue pushing compensation norms in the direction of incentives that link employee interests with long-term performance,” adds Johnson Associates vice president, Andria Cardillo.