Pay Envy - What Compensation Figures May Not Reveal
Host, “Fast Money” & “Options Action”
In the world of alternative investments, they use alternative methods of compensation.
Base and bonus don't accurately represent what these folks are making. Hedge fund pay, the focus of my Power & Money report today, is the perfect example.
The average pay for a CEO was $4.5 million, according to Infovest. The average pay for a portfolio manager: $2.5 million. But what these numbers don't include is the fattest part of the paycheck: the portion of pay tied to P&L. Bottom line, for a person who makes investment decisions at hedge funds, that could be 20 to 50% of the P&L they manage. And that can mean $20 million or more in additional pay, according to search firm, Glocap.
In the world of private equity, it's no surprise compensation is also on the rise. Funds need scores of people to help deploy the record amount of money they've raised. And the talent competition is fierce. Private equity, hedge funds and investment banks are all competing for the same pool of talent.
At buyout/growth equity funds: Private equity "senior associates," those fresh out of business school usually with prior private equity experience, saw a 16% raise this year, to a total of $289,000 base plus bonus. Partners got a 7% raise, for a total of $1.51 million.
What the numbers don't show though: "carried interest." Carried Interest is the general partner's fee for "carrying" management responsibility and it can range from 15 to 30% of profits, according to Glocap.
Traditionally, 85-90% of the carry was held at the partner level. But as funds compete for talent and aim to keep their talent in-house, carry interest is trickling down to the next generation of partners. Glocap says 85 to 90% of funds offer freshly minted MBAs a percent of carry. And that can mean more than $4 million at mega funds.
Questions? Comments? PowerandMoney@cnbc.com