Compensation in the U.S. asset management industry is rebounding after two tough years, says Greenwich Associates in a new report.

Industry assets have bounced back this year after a couple of years of asset depreciation and investor redemptions, improving company performance and compensation levels.

Greenwich says that moderate improvement in the business environment and year-on-year growth in assets under management is expected to push compensation levels higher across the investment management industry.

“While the rebound in average compensation levels in this industry has been impressively fast, projections for 2010 are softer now than they were just three-to-four months ago,” says Francine McKenzie, managing director of Johnson Associates, a New York-based compensation consulting firm, which collaborated with Greenwich on the research. “Uncertainty about market direction, the strength of the global recovery and near-term prospects for asset management growth and profitability is dampening expectations that earlier in the year were quite strong.”

Greenwich says that hedge funds, and professionals in that segment of the industry, were hit hardest by the global market crisis. It reports that as markets imploded in 2007-2008, average total compensation for senior hedge fund fixed-income investment professionals declined more than 40%, only to rebound by about the same amount from 2008-2009. Average total compensation for senior fixed-income professionals at hedge funds, is now projected at US$1.1 million, exceeding pre-crisis levels.

On the equity side, average reported compensation for senior hedge fund professionals declined 44% from 2007-2008 and then fell another 15% from 2008-2009. Total compensation for these professionals is projected to increase by 8% in 2010 to US$875,000.

“Hedge fund equity professionals in 2010 are earning about half what they took home in the boom days of 2007 — and less than their counterparts at traditional asset management organizations,” says Greenwich Associates’ director of institutional marketing, Jennifer Litwin.

Compensation for professionals at traditional asset management firms have experienced far less volatility, Greenwich says. It reports that average compensation levels among senior fixed-income professionals at traditional funds and advisors declined by about 5% from 2007-2008 and then jumped 53% from 2008-2009. Those levels are projected to increase approximately 10% to US$525,000 in 2010.

Average compensation for senior equity professionals increased 34% from 2007-2008 and then held steady from 2008-2009. These levels are projected to increase 12% to US$950,000 in 2010.

Greenwich also reports that there’s a growing disparity in pay between chief investment officers and other professionals. Average 2009 total compensation for CIOs in equities was approximately US$1.80 million, compared to US$825,000 for equity portfolio managers, US$540,000 for directors of research and US$320,000 for analysts. In fixed income, CIOs earned approximately US$850,000 on average compared to a range of US$340,000-US$525,000 for other investment professionals, it says.

The structure of compensation has also changed. In 2009, bonuses accounted for approximately 70% of cash compensation among equity portfolio managers and 50-60% among equity analysts and traders, with the remainder coming in salary. For fixed-income portfolio managers, salary makes up a bigger portion of cash compensation. Bonuses for fixed-income investment professionals ranged from approximately 65% for traders and 55% for portfolio managers to roughly 25% for analysts, Greenwich said.

Additionally, compensation structures are incorporating more long-term incentives. The consultants at Greenwich Associates and Johnson Associates project a significant expansion in the use of deferred/long-term incentives by asset management firms in the years ahead. This growth will in all likelihood come at the expense of bonuses, they said, which are expected to decline as a share of overall compensation while both deferred/long-term compensation and cash compensation increase.

IE