Posts Tagged ‘hedge funds’

High Flying: A look at hedge fund manager pay

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Expert Perspective by Grahall’s OmniMedia Editorial Board
 
Reporters Nelson D. Schwartz  and Louise Story tell us in the March 31, 2010 article for the New York Times, “Pay of Hedge Fund Managers Roared Back Last Year” that: “… top hedge fund managers rode the 2009 stock market rally to record gains, with the highest-paid 25 earning a collective $25.3 billion, according to the survey, beating the old 2007 high by a wide margin.   The earnings figures reflect Absolute Return magazine’s estimation of each money manager’s portion of fees as well as the increased value of his personal stake in his fund.”

Hedge fund managers receive compensation in two ways.  First, managers receive an administrative fee – which may range from 1.5% to 3%, but generally equal  2% of total assets under management.  While at first blush 2% may not sound like much, but considering fund assets are measured in billions of dollars, 2% amounts to a significant amount of money.  The second way that hedge fund managers are paid is a performance fee.  Generally (but not always), hedge fund performance fees equal 20% of the gains realized by the fund.  Because this 20% is usually leveled on profits over a “high water mark” – the highest value previously reached by the fund – ensuring that the hedge fund manager and the investors are perfectly aligned, hedge fund performance fees are essentially the purest form of pay for performance.   Think of it this way, when the stock market is down, those fund managers who have lost less than the market decline are seen as “successful” (and, of course, as long as there are assets in their funds all these guys will get paid the administrative fee). Hedge fund performance fees don’t work that way.  Hedge funds must have year over year growth to pay a performance fee.  Hedge fund managers only get paid their performance fees if they make money for their investors.

But hedge fund managers are doing more than just making money for themselves and their investors.  For example, recently, Cerebrus bought Chrysler, saving tens of thousands of jobs.  In addition, they may also be taking on an activist investment role that can provide additional benefits.  Activist hedge fund managers acquired a substantial stake in the company and forced changes to improve corporate governance and better balance the governance power between boards and management.

The article “The Top 10 Activist Hedge Funds (to piggyback)” says with regard to activist hedge funds:

“1. They do enormous research to find out where there is hidden value. Activists typically go into situations where the value isn’t immediately clear and they press management to unlock that value (for instance, trying to get MCD to sell real estate holdings, etc).
2. They are typically long-term holders. Activists tend to take 5% or greater positions in a company. They aren’t able to nimbly trade out of those positions.
3. They usually publish their research in 13D filings in order to convince shareholders to vote their way.”

The article lists top activist funds as (among others):  Shamrock, Jana Partners, Carl Icahn, Chapman Capital,  and Third Point.

How, why and when hedge fund managers get paid is an important part of the fund structure and the hedge fund firm’s ability to retain its top talent.  Hedge fund principals would benefit from understanding the marketplace for talent. 
Towards this end, Grahall, has partnered with Holt Private Equity Consultants  and MM & K to create a groundbreaking survey, the “2010 Alternative Asset Management Compensation Survey”.  The survey collects and reports data on compensation design, as well as compensation levels; in other words, we will disclose both “how” compensation is paid, as well as  “how much” compensation is paid.

All information will remain confidential and survey participants will receive several free reports and other special discounts.  If you are interested in participating or want more information go to the survey home page or contact:

Grahall Consulting Partners, LLC
Claudia DeFrancisco, claudia.defrancisco@grahall.com, (617) 455-2307
Michael Graham, michael.graham @grahall.com, (917) 453-4341

Holt Private Equity Consultants
R. Michael Holt (Mike) , (239) 594-5530

MM & K Ltd.
Andy Manktellow, Andrew.Manktellow@mm-k.com,  020 7283 7200

Or contact Grahall’s Editorial Board at edie.kingston@grahall.com

Filed under: Expert Perspective - Rewards



Congress Has Hedge Funds, Buyout Firms in Tax Sights

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The “carried-interest” tax debate has re-emerged in Congress, threatening to more than double taxes on some of the country’s wealthiest individuals—private-equity and hedge-fund managers.  The issue flared in 2007, only to die when the financial crisis struck. This time around, amid soaring deficits and hostility over Wall Street pay, most fund managers have resigned themselves to higher tax bills.

Filed under: Newsfeeds



It’s Absolute

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Expert Perspective by Grahall’s OmniMedia Editorial Bard

expert perspective telescopeEric Dash’s November 5, 2009 article  Some Wall Street Year-End Bonuses Could Hit Pre-Downturn Highs  shares the results of a study by Johnson Associates that finds: “This will be an unusually lopsided year for [Wall Street] bonuses. While traders are looking forward to fat bonuses, payouts for people working in asset management, corporate and retail banking and the insurance businesses are expected to be flat or even down, according to the study.  Given the decline in the once-booming mergers and acquisition business, bonuses for certain dealmakers could fall 10 to 15 percent. And the once-gilded paychecks of hedge fund managers are expected to decline 15 to 25 percent. Private equity executives will be among the hardest hit, with their year-end bonuses falling 20 to 25 percent…”
Continue reading “It’s Absolute” »

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Canadian Hedge Watch Reports on Gahall’s Survey of Hedge Fund Comp Practices

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Canadian Hedge Watch printed Grahall’s press release on compensation practices in the hedge fund industry. 

Grahall Partners, LLC recently released to participants the results of the 2009 Survey of Hedge Fund Compensation Practices. The survey was developed in collaboration with Kleinberg, Kaplan, Wolff & Cohen, P.C. and UBS Prime Brokerage Services.

This survey provides a unique perspective about the architecture of key compensation practices in the hedge fund industry. It differs from other hedge fund compensation surveys in three key ways

Link to Canadian Hedge Watch article.

Email Grahall’s OmniMedia Editorial Director at edie.kingston@grahall.com

Filed under: Grahall in the News



eMediaWire Quotes Grahall on Compensation Practices in the Hedge Fund Industry

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grahall in the news #2A Unique Survey of Compensation Practices in the Hedge Fund Industry 

Link to eMediaWire report.
 
 After a tumultuous year for the Hedge Fund industry in 2008, the industry faces unprecedented challenges, the impact from which will reverberate through 2009 and beyond. These challenges will be met by management companies making changes to business strategies as well as addressing issues on how to structure compensation and attract and retain talent.  A key question to consider when an employee with vested equity departs from a management company is how the circumstances giving rise to his departure, as well as his compliance with any restrictive covenants after the departure, will affect the calculation of his buy-out.  

Grahall Partners, LLC recently released to participants the results of the 2009 Survey of Hedge Fund Compensation Practices. The survey was developed in collaboration with Kleinberg, Kaplan, Wolff & Cohen, P.C. and UBS Prime Brokerage Services.

Link to eMediaWire article.

Filed under: Grahall in the News



Seeking Higher Taxes on Hedge Funds

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Published in Institutional Investor Magazine May 20, 2009 by Anna Bahney

Senator Carl Levin leads movement in Washington that would have hedge funds pay higher taxes.

Link to full article.

Filed under: Newsfeeds



Obama Targets Financiers to Close ‘Loopholes’ in U.S. Tax Code

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Published in Bloomberg May 12, 2009 by Ryan J. Donmoyer.

President Barack Obama is increasingly turning to financiers and the firms that employ them as a source of revenue to plug holes in his budget and what he sees as gaps in the tax code itself.

Link to full article.

Filed under: Newsfeeds