Portfolio managers and traders on the buy side are outperforming their sell-side peers in a series of quantitative and qualitative career measures, according to a new report, Buy-Side Bliss: Compensation Up in 2013, from Greenwich Associates and Johnson Associates.
- Buy-side compensation increased approximately 15% last year, versus -10 to +5% on the sell side. Greenwich Associates and Johnson Associates project that trend to continue with buy- side incentives projected to increase 10–15%, versus 5–10% growth on the sell side.
- Since the financial crisis, sell-side firms have been forced to aggressively control costs, leading to repeated headcount reductions. Although cost control also presents as an important issue on the buy side, layoffs have been less pervasive.
- Aside from the asset management divisions or captives at major banks buy-side firms have not been subject to the same regulatory scrutiny on compensation issues. While public firms have some exposure to regulatory pressures, independent private asset managers have a competitive edge in recruiting talent.
- More generally, buy-side firms have largely escaped the regulatory pressure and public scrutiny that has fallen on the banking industry, leading to higher levels of job satisfaction and morale.
Hedge Funds vs. Traditional Asset Managers “For fixed-income professionals hedge funds are the place to be,” said Greenwich Associated analyst Kevin Kozlowski. Total annual compensation for hedge fund fixed-income professionals averaged $1 million in 2012, versus $460,000 among fixed-income professionals at traditional management firms, and the pay differential between the two groups increased to approximately 2.2X in 2012 from 1.8X in 2011. Equity traders and portfolio managers face a much different environment - compensation at hedge funds and traditional managers fell slightly to be roughly at parity from a differential of 1.14 in 2011, with average pay at about $660,000 in 2012.
High-Performing Funds vs. Average-Performing Funds The growing division between top and average performers is reflected clearly in compensation trends: Among the top-performing “winners” in investment performance, total compensation is increasing about 30% year-over-year, while firms with middle-of-the-pack performance experience a lower 10%–15% increase.
Independents vs. Captives Although conditions are improving for employees of bank-owned asset management firms, the combination of regulatory pressures and balance sheet issues facing these organizations remains a drag on compensation and job satisfaction. Nevertheless, due to continued issues related to regulation and capital availability at captive firms, independent asset management firms remain the more attractive option.
Looking Ahead
The asset management sector is expected to keep a close eye on costs and headcount moving forward. “Some firms expect turnover to increase from the current historically low levels as job opportunities become more plentiful and gradually returning stability quells the risk of moving,” said Johnson Associates Managing Director Francine McKenzie. “Firms need to continue to monitor the balance of business need and attrition levels against headcount as they proceed with leaner teams into 2014.”