Buy-side pay is growing steadily despite the difficult economic environment and pressure on sell-side remuneration, according to research from consultancies Greenwich Associates and Johnson Associates.
The research found that overall buy-side compensation grew by approximately 15% last year, versus between -10% and 5% on the sell-side. Buy-siders are expected to continue to do better in 2013 as well, with Greenwich predicting pay will increase by between 10-15%, compared to 5-10% on the sell-side.
While cost concerns still remain crucial for both buy- and sell-side firms, a number of differences between the two, including public scrutiny of pay, bifurcation in fund management and different regulatory pressures mean buy-side professionals have fared relatively well since the downturn of 2009.
With banks under considerable public pressure over pay in the wake of the financial crisis, their internal trading teams have been subject to on-going pressure to keep pay down. While banks’ captive asset management departments have suffered similarly, independent buy-side firms are not facing the same level of public backlash and have a competitive edge in recruiting top talent, according to Greenwich.
Within the buy-side itself, there is also a significant split, with the low interest rate and investment returns that have characterised the post-crisis era, alpha has come at a greater premium and those managers and traders most able to deliver can expect improved remuneration as a result.
Hedge fund employees have generally benefitted the most compared to traditional long-only managers, particularly in fixed income. A hedge fund fixed income professional can expect annual remuneration of US$1 million, compared to US$460,000 at a traditional asset manager. However, in equities the two are roughly on a par with average pay of US$660,000.
Pay structures have also been transformed, with many buy-sider firms following the example of the sell-side in moving from remuneration packages based on large cash bonuses to salary and long-term incentives following the financial crisis.However, Greenwich believes salaries among independent asset managers are now likely to remain stable with greater increases in incentives expected in the next few years.