Hedge Fund Manager Salary Uk

Hedge Fund Manager Salary Uk – Almost everyone thinks that if you work at a hedge fund, you will make a ton of money. For some reason the media always loves to talk about how much big hedge fund managers are worth and the crazy things they like to buy (ie mansions, NFL teams, $50MM+ works of art, etc.).

Of course you can become extremely rich if you can convince others to manage your $500MM+ capital. The economies of scale are incredible if you can generate decent profits every year.

Hedge Fund Manager Salary Uk

Hedge Fund Manager Salary Uk

However, the reality is completely different. Hedge fund analysts, on average, do not earn as much money as those who work in private equity or investment banking.

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To understand how a hedge fund analyst or portfolio manager is paid, you need to understand how a hedge fund is generally paid. The payout for most hedge funds is determined based on two fee streams:

In the good old days, hedge funds used “2 and 20”, meaning a 2% management fee and a 20% incentive fee. However, given hedge fund performance over the past decade, fees have dropped significantly to around 1-1.5% management fee and ~15% incentive fee. There are a select few funds that are capable of charging much more given their long history of outperformance, but those funds are few and far between.

The management fee is paid regardless of the P&L and is based on how much capital the fund manages at a given point in time. The incentive fee is usually paid at the end of the year and is based on the profit for the year. Once a fund’s incentive fee is paid, a “high water mark” is set and they must make more than that level going forward to continue making the incentive fee.

If the fund has more than one private equity type structure, incentive fees are paid after the returns are realized over the life of the fund. Some hedge funds, especially those that invest in illiquid/distressed credit, have these types of structures because they cannot afford to have redemptions while investing in these markets. There is usually a certain recurring hurdle that must be met before they are paid their incentive fees (ie ~6-8%), then there is a cap for the hedge fund, then the profits are shared ~80/20 later (20% for the bottom).

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Let’s say a fund starts the year with $1 billion in assets under management (“AUM”) and is paid on a 2 and 20 basis. For the year, the fund gets $20MM off the beat because of the management fee, which’ t is used to pay for bottom-level expenses (ie salaries, office space, lunch/dinner, Bloomberg terminals, small bonuses, etc.).

Assuming the fund makes a 10% return for the year, that’s about $100MM in profit, of which the fund keeps $20MM (the 20% incentive fee) to share among its employees.

As you can see, this business has a crazy good economy, if you can always do well in the long run, that is why many of the best billionaires in the world are hedge fund managers.

Hedge Fund Manager Salary Uk

There can be a big difference between the pay in a single manager versus a multi-manager. Decent-sized single-manager funds can usually pay small bonuses each year using only the amount they collect on management fees. Therefore, even if a fund generates zero profits for the year, hedge fund analysts may still be paid a large bonus by one manager.

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Doesn’t that sound good? Why do hedge funds get paid if they don’t make money? This is one of the main reasons why the fees for hedge funds have fallen on average, because the returns are not up to the expectations of investors.

Analysts working in a multi-manager fund are paid a little differently based on the performance of their individual team, not the overall company. Learn more about the basics of working in a multi-manager fund if you want to know more.

Most single manager funds are structured in a similar way. There is usually the portfolio manager, who is the founder of the fund. He/she has the final say on all investment decisions and is paid the most of anyone in the company. Then you have industry leaders, who are the business analysts and cover specific industries. So at the bottom of the totem pole you have the analysts, who are one to three years out of college post investment banking.

Once a single manager starts managing more than $2 billion, there are usually several portfolio managers who are assigned a fixed amount of money to manage on their own and can make their own investment decisions without the approval of the founder

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Multi-managers are similar, but everyone works in their own specific team and doesn’t interact much with other teams. Each team is assigned a set amount of capital, somewhere between $200MM and $2 billion, and has a guy (the portfolio manager) who runs the show. The portfolio manager will hire approximately one to four analysts to help make investment decisions. The hierarchy is quite flat and most analysts have direct exposure to their portfolio managers. If the team is large enough, then you will likely have less exposure to the portfolio manager and more exposure to the senior analyst or group sector leader.

To get the best shot at landing a job at a hedge fund, you should start your career as an investment banker. Yes, there are people who can enter the industry straight out of university, but that’s usually not the case.

As a separate point, you shouldn’t try to get into a hedge fund straight out of college, because you probably have no idea if that’s really what you want to do. Take the path that gives you the most options ahead, work in investment banking for a few years.

Hedge Fund Manager Salary Uk

After your first year in banking, you may start looking at transitioning to a hedge fund. For more on how to land a job at a hedge fund, read the step-by-step guide.

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Most new analysts are one to three years out of the bank. If you​​​​​​are in a decent fund ($500MM+), you should be paid a base salary of $115-$150K with a wide range for bonus depending on fund performance. All-in compensation for a hedge fund analyst with one to three years of banking experience is usually ~$200K to $250K for their first few years.

If you​​​​​​are able to work in one of the largest known hedge funds, you can earn $300K+ in your first year.

Again, analysts with multiple managers are paid differently. Usually the base is the same as above, but the bonus can be zero if the team does not make a profit that year.

After three to four years as a hedge fund analyst, you should develop good expertise in a few related industries to the point where you can generate your own ideas. You then become much more valuable and can immediately start contributing to the company’s profits.

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Senior analysts are paid a slightly higher base than hedge fund analysts with a much larger bonus depending on how much they contribute and how well the fund does. It is not unusual for a typical senior analyst to earn somewhere between $300-$600K in a given year and possibly much more if the fund has a breakout year.

After about 5 to 10 years, you should get more responsibility and start managing a fixed amount of capital for the fund. Once you are given this direct level of responsibility, your pay will be highly variable depending on your own performance.

I have seen portfolio managers make only $200K and I have also seen portfolio managers make $2MM+. It really depends on how much you contribute to the operation of the fund.

Hedge Fund Manager Salary Uk

Portfolio managers in multi-manager hedge funds are paid in full based on a fixed percentage of their profits. For more information specifically about multi-administrators, read the basics.

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For some reason, people think that if you work at a hedge fund, you automatically make a ton of money. Yes, there are some who are extremely good at what they do and are able to consistently generate profits year after year, but on average, most hedge fund analysts are stuck making ~$200-$400K year.

I know this sounds like a lot to the average person straight out of college, but it’s less than what investment bankers and private equity people make when they reach the title of vice president. During my early years working at a hedge fund, my fellow analysts during my banking days who decided to stay in banking made significantly more than me. The same was true for my friends who also went the private equity route.

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