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Hedge fund employees' bonus optimism is... Extreme

Bonuses are being announced and paid in the coming weeks. And bankers aren't the only ones getting paid.

Our bonus expectations survey, conducted late last year, measured bonus expectations on the buy-side as well as the sell-side. As the chart below shows, buy-side respondents are more optimistic than the rest, and hedge fund respondents are the most optimistic of all.

 

Hedge fund optimism makes a lot of sense, mostly reflecting the strong performance of many of the large multistrategy hedge funds this year. Citadel, for instance, returned 15% in 2023, with competitors Millennium, Verition, and ExodusPoint returning 10%, 8%, and 7% respectively.

Vigorous competition for talent means many funds will feel compelled to pay their people well, although a rise of 30% may prove optimistic – not all hedge funds were as successful over the course of the year as Citadel. Balyasny, another huge multistrategy fund, returned just 2.7%, for example. Given inflation was around 3% in the USA last year (lower than most major economics), that seems difficult to reconcile with huge bonus changes.

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Even so, pay is the reason people like hedge funds. Our ideal employer ranking from late last year found that, whilst long term career prospects were important to prospective hedge fund employees, it was overwhelmingly due to it being “very well” paid – a category it performed much better in than even being considered “very fairly” paid.

It’s also worth point out that hedge fund optimism isn’t exactly unique. Bankers at Goldman Sachs and HSBC were also expecting disproportionately titanic bonus increases, of 30% and 29% respectively, way higher than their closest rivals did.

Not everyone on the buy-side is expecting their bonus to increase, however. Traditional asset managers expected bonus declines - the only major sector to do so. The pessimism follows job cuts at major firms like Prudential and Charles Schwab, as asset managers seek to squeeze costs in the wake of resurgent interest in money market funds in the era of higher rates, shrinking margins, and the continuing allure of exchange traded funds.

Private equity people are also surprisingly optimistic, all things considered. The money is massive in the industry as it is, but respondents who identified as part of the industry were expecting more than last year. That’s in spite of the fact that investors who usually invest in private equity funds – pension funds and insurance companies and the like – have been pulling out, per Bloomberg, and private equity funds are finding it difficult to return money to investors.

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AUTHORZeno Toulon

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