While the S&P is flirting with unchanged territory on the year, for hedge funds 2018 was a year they would all rather forget ever happened: not only is the HFRX hedge fund index down 6.3% YTD, its worst annual performance since Q3, 2011, but as of today it is at the year lows, confirming that hedge funds “hedge” only in name.
Furthermore, as we discussed yesterday, the investing public appears to have lost its fascination with the 2 and 20 business model, and as Hedge Fund Research calculated, in 2018 there were the fewest hedge-fund launches since 2000…
… while poor performance and growing redemptions have forced dozens of marquee names to either shutter or convert to family offices, with the list below summarizing some of the most popular managers who have thrown in the towel in 2018 or decided to return outside money and only manage cash for “friends and family” (and their own, of course).
And yet, paradoxically, despite a truly abysmal track record, where the average hedge fund is not only down for the year but badly underperforming its benchmark for the 8th year in a row, hedge fund employees of all stripes, from junior analysts to portfolio managers, have something in common this year: unmitigated optimism in the form, or as Bloomberg puts it, “they’re all expecting fatter paychecks.”
Despite an industry beset with lagging performance, an investor exodus and closures, hedge fund professionals expect a median compensation of $520,000 in 2018, a 16% increase from last year’s $450,000, Bloomberg reports citing a survey by executive search firm Odyssey Search Partners, which polled 500 respondents from September through November.
Here’s the breakdown: the top tier – i.e., partners, portfolio managers and other senior staff – predict a more modest increase in comparison to their junior counterparts. They see a median compensation of $950,000, up nearly 10% even though most of them have failed to deliver on their only job requirement: outperform the market. And naturally, since this group’s compensation is the most tied to performance, that makes this optimism especially perplexing.
As for junior analysts, many of whom have been made obsolete in a market in which fundamental analysis is irrelevant, and where algos, robots, HFTs and various other machines call the shots, they expect average comp to rise 18% from $275,000 to $325,000.
Don’t tell them but they will all be disappointed.
Another ironic finding: most hedge fund employees said in the survey that they are still bullish overall on their industry, which is also ironic in light of the now daily news of one or more hedge funds shuttering for good. Which may be why their confidence is muted: this time last year they expected a 39% bonus increase versus 21% this year, according to the survey. They’ll be lucky to get 0%.