A Delicate Art By Imogen Rose-Smith

But money is not the only reason people join hedge funds — or stay at them. Many of our survey respondents say that the responsibilities they are given and the reputations of their firms are more important than pay when it comes to deciding whether to stay at their current firms. Still, two constants at all hedge funds are that compensation centers on bonuses and that ownership is the key to accumulating superior wealth.

Alpha’s compensation report shows that firms pay up for what they value most. Investment professionals are almost always the highest paid, because they drive the returns that create wealth. But different investment strategies rely on different strengths. For long-short equity managers that prize stock picking above all else, the role of the analyst is paramount. At these firms senior analysts often are also partners, making millions of dollars a year. At hedge funds where trading or portfolio management is instead the focus, analysts are unlikely to make more than $500,000 in annual compensation, whereas head traders or senior portfolio managers can make tens of millions of dollars.

Compensation at all hedge funds depends largely on three factors: how much money the firm has in assets under management, the firm’s investment performance and the system for sharing the wealth. Not surprisingly, big firms generally pay more. The average annual compensation for a senior analyst at a firm with $10 billion or more in assets is $1.3 million, whereas the average pay for the same position at a firm with less than $100 million in assets is $228,000. But even at big firms, people working in junior positions do not always see the wealth. Average total compensation for a junior analyst at a fund with at least $10 billion is $295,000.

Firm size is especially important when it comes to compensation for marketing personnel. For small outfits, at which gathering assets is often a slow and arduous process, marketing is not highly remunerative; but as firms gather momentum, the job becomes far more lucrative, especially since compensation tends to be based on winning new business. The average pay for a marketing manager at a hedge fund firm with $50 million to $99 million is $235,000; at firms with $2.5 billion to $4.9 billion in assets, a marketing manager earns more than $1 million.

Although hedge funds typically view themselves as meritocracies, where performance trumps all else, our study shows a correlation between years of service and compensation. CEOs with four or fewer years of experience earn on average $1.5 million annually; for those with 11 or more years of experience, the pay package escalates to $3.2 million. Neither figure includes the potentially lucrative returns on the CEOs’ own invested assets in their funds, which is what helps make the managers on Alpha’s list of 25 top moneymakers so wealthy.

For senior investment professionals who never become the big boss, average compensation peaks within a decade and then trails off. According to our survey, the pay for a chief investment officer with one to four years’ experience is $1.2 million. A CIO with five to eight years’ experience makes $2.6 million, but one with 11 years or more of experience earns $1.7 million. The drop-off is even more dramatic for senior portfolio managers. With four years or fewer in the field, a senior portfolio manager earns on average $987,000; with nine to ten years’ experience, that number jumps to $3.7 million. But the average for a senior portfolio manager with 11 or more years of service is only $1.9 million.

Geography also has an impact on compensation. The average total compensation for a chief operating officer at a hedge fund in the U.S. is $742,000; in the U.K. it is $785,000. A chief compliance officer in the U.K. typically earns $672,000 — nearly $200,000 more than his or her counterpart at a U.S. firm. Traditionally, London-based financial services firms, including hedge funds, paid less than their counterparts in the U.S. No longer. Thanks to the combination of a weak dollar and the strong growth of London as a financial center during the past five years, hedge funds in the U.K. now pay as much as, if not more than, firms in the U.S. But U.S. hedge funds’ CEOs still rule the compensation roost. The average compensation for a CEO at a U.S. firm is $7.9 million; in the U.K. it is $1.4 million.