Compensation consultant predicts declines between 20% and 25%, with less steep reductions for alternative firms
Asset managers will see their compensation drop anywhere from 5% to 25% as the market impact of the pandemic ripples throughout the industry, according to new projections.
Citing figures from compensation consultant Johnson Associates, Institutional Investor reported that 2020 incentive compensation at traditional asset-management firms is set to decline by 20% to 25%. The space has seen an across-the-board decline in assets under management, with investors abandoning stocks and bonds in favour of money market funds or cash.
Hedge funds are expected to take a less forceful hit — a year-on-year compensation decline between 15% and 20% — as their average performance is down less than the overall markets. Hedge-fund assets are at a multi-year low, Johnson noted, as the relative success of macro and event-driven strategies wasn’t enough to fully offset negative impacts on other strategies.
And while private equity professionals have become the most highly paid as they showed rapid growth in recent years, their incentive compensation is expected to decline by 5% to 10% relative to 2019. Without the capital and flexibility of larger firms, small and mid-size shops are expected to reduce pay even further by 15%.
Weighing in on wealth-management firms, Johnson said that asset declines coupled with drops in fees paid by investors de-risking their portfolios will result in a drag on incentive pay equal to a 20% to 25% year-on-year decline.
Many of the headwinds cited by the consultant have been blowing for years, only to be masked by the long-running bull market that began in 2009.
“[The] pandemic magnified ongoing challenges of many firms,” the firm said.