Who Takes Home the Fattest Paycheck at a Hedge Fund?
The Director of Sales and Marketing at a hedge fund takes homes an average of $1.3 million in total compensation, according to the latest executive compensation survey conducted by Infovest21 as reported in Hedge Fund Daily. Ironically, the position also comes with one of the lowest base salaries.
Not too far behind, CEOs of hedge funds earn an average of $1.1 million, while CFOs take home a cool $1 million.
Just below the million-dollar mark, Hedge Fund Daily reports that the Infovest21 survey finds that hedge fund CIOs pocket between $800,000 and $900,000, although the position’s base salary averages just $253,000.
Compensation for the Director of Research and Chief Operating Officer falls in the $700,000 to $800,000 range. Both positions however, have base salaries of around $200,000. The survey also finds that Portfolio Managers and Assistant Portfolio Managers earn among the lowest base salaries, but take home total compensation of up to $600,000.
Fund managers typically earn a compensation management fee on the fund’s assets regardless of how they perform, about 2% per year. But the fee is usually just a fraction of total compensation. The windfall comes as an outsized share of the fund’s profits, known as carried interest, which is typically 20% (but has gone as high as 50%). It is a means of providing incentive to the fund manager to maximize the fund’s performance.
The “carry” is interest on the profits realized and is considered capital gains as opposed to income. This distinction can be quite lucrative. Carried interest is taxed at the 15% capital-gains rate, rather than ordinary income - a fact that has not gone unnoticedon Captiol Hill. A House proposal would tax carried interest as ordinary income, at rates as high as 35%. According to a recent WSJ report however, the senate’s top tax writer says a tax increase on carried interest isn’t in store this year for private-equity and hedge fund managers.
Looking ahead, hedge fund compensation may see increases by 2009. Institutional investors in the U.S., Europe and Australia are most bullish on hedge fund returns over the next two years, according to a new Russell Investments survey. As investors around the world aim to ramp up allocations to alternative investments, executive search firm, A.E. Feldman, reports that hedge fund jobs may increase along with demand for alternative investment professionals.
