Hedge fund managers think they should make more money even though most don't beat the market

Some hedge funds prep for Trump trade's end

Hedge funds, as a group, have a lower return than straight-up market indexes do. But professionals in the industry surveyed late last year still expected to take home better pay in 2016 than they did in 2015 — and an even greater portion think they deserve more.

A majority — 53 percent — of those surveyed said they expected to produce higher overall earnings for themselves in 2016 compared with 2015, according to the 10th annual Hedge Fund Compensation Report. That proportion is slightly lower than the year before, where 56 percent said they were expecting an increase in total compensation.

And during a time where the industry has caught the ire of many investors — including Warren Buffett, who last week described the industry's fee structure as "obscene" — an even greater percentage of fund managers reported being unsatisfied with their compensation for the year. Sixty-one percent of respondents aren't happy with what they made.

Buffett takes on hedge funds

The report is based on information gathered in the fall from hundreds of partners, principals and employees from more than 200 of the largest hedge fund names, including Och-Ziff Capital and AQR Capital Management. The study also includes some of the smaller names that encompass a large portion of the industry.

That optimism on pay comes amid another lagging year in performance. The HFRI Fund Weighted Composite Index, which tracks various strategies of hedge fund performance, gained 5.45 percent during 2016. That compared with a 10.5 percent increase in the Standard & Poor's 500 index.

Still, the report showed a greater correlation between fund performance and bonus pay than in years' past. Expectations for those employees in firms with lower performance showed lower bonus expectations, and the opposite was true for employees at high-performing firms.

Most money comes as bonuses

The report showed that among the highest earners, 80 percent of compensation is expected to come in the form of bonuses, which is consistent with prior years. That said, base pay for the highest levels continues to rise, according to the study.

Almost a third of respondents expected the same total compensation as last year, while only 19 percent said that their compensation would be smaller than last year.

"In view of the industry's lackluster average aggregate performance level, it is interesting that a majority of survey respondents still anticipate positive growth in their total compensation," the report said.