How much do equity portfolio managers make?

A good portfolio manager at a place like fidelity, wellington, capital group, dodge&cox, t. rowe price, etc., are making a lot more than $500K. Think of how much money they manage, and given that a PM gets a % cut of the pnl, a good one is making in the seven-figure range.

above is correct, 500K is low

how much do Assistant Portfolio Managers make at a 2nd-tier AM house?

analysts at larger "good" firms with several years' experience make that much and more. PMs are going to be pretty variable but are going to definitely be higher than 500k on average (again, at larger firms).

Why do those PMs make that much if most of their mutual funds underperform the market? I don't understand why "tracking indices" would justify such high pay. Can someone explain?

What is the AUM of a portfolio manager if he makes the high 6 low 7 figures all you guys are talking about?

bump

for the PM of a large equity mutual fund 8 figures would be more typical than 7

When you say large mutual fund, what type of size are you talking? I understand that there is a lot of variability but at what point in AUM does comp really start to diminish?

Bearcats: In that case I would think we are in agreement. I work in the l/s hf space where $1bn would be considered large, and $5bn would be considered huge. I would totally agree with a PM of a 10-20bn fund making at least $10mm a year.

As an aside, for a $10bn fund, how many positions are there? If you didn't want to hold more than 10% of a name, and had 50 names in your portfolio, that would limit your universe to $2bn+ market cap. I guess that leaves 750-800 US names as options, so not terribly confining, but might still pose an issue.

Thanks for any insights.

IBPEHFVC,

Are you saying that fund managers can get 50bps or .50% of the total fund assets as compensation each year? Or is that 50bps divided amongst all the support analysts and managers, so maybe the managers end up taking home 30bps? If the managers take home 50bps, and there are quite a few $2 billion funds out there with only one manager, that would mean that manager is taking home $10 million? That sounds a bit high. I have a relative who is one of two fund managers on a 2 billion dollar fund at a private shop, meaning that even with the 30bps assumption, is he really taking home 3 million a year? Also, how did you look up the compensation with the public companies? Usually it only lists their executives, not all the fund managers, if I'm not mistaken.

No, 50 bps x average AUM is the total revenues of the firm. This is also a high op lev business, so scale matters when thinking about the smaller independent mgr vs. large complex, and the PMs within each.

For the public firms, look at the financials...all you're going to get is the total comp / revs. Obviously, the comp pie can be split differently at different shops, but this is a competitive marketplace so I would guess percentages would roughly hold.

personally i think 50bps is light on equity funds...i've generally seen 80bps as a good assumption, especially for funds that don't need assets desperately and therefore won't heavily discount.

to be clear, i define a large fund as 10bn or more (but something to remember is that in a lot of mutual fund complexes a single PM oversees multiple funds...so like there are 7 emerging market funds but they're all ultimately run by the emerging markets team which has 1 head)...

so at 10bn w/ 80bps -- that's 80MM of recurring guaranteed revenue every year. at a general comp ratio of 30-40%, that's 24-32mm of comp. and if the PM is actually viewed as a key man who can walk with the aum (which, if he's running a large fund he probably is and probably can...there have been people i can think of who have left to start their own boutique mutual fund shops and pretty easily raised 5-10bn w/ 100% equity ownership and more or less stole their old employers assets), i'm pretty comfortable with tthe pm getting about 8-12mm of comp. (admittedly in many major MFs PMs have significant equity ownership in the fund manager itself (eg wellington) but regardless the nums probably work out around the same...

Sorry for splitting hairs too much here, but I'd say domestic equity funds are closer to 50-60bps. Remember fees on domestic are less than intn'l/emerging, and retail are more than institutional. Below are the rev capture rates for a few large public's. To get the true equity capture you would adjust for fixed income mix, but then back out fees generated from in-house trading (not going to pay PMs for turnover). My firm is heavy retail (hello load fees), trading fees, no fixed and we get ~70bps.

AllianceBernstein: 41bps T Rowe: 47bps Janus: 50bps Invesco: 49bps Franklin: 62bps

You have comp ratios as low as 17% at BEN, but closer to 30%-35% at IVZ and TROW. You have to remember that comp ratio includes the whole firm's comp: top management, sales, marketing, HR, compliance, accounting, research analysts (don't forget about the pesky overpaid directors of research), those senior relationship guys who help PMs deal with clients, etc. I've personally seen the complete comp breakdown of a $200bn firm, and you'd be surprised how much the top dogs (non-PMs) get. Obviously the star PMs, and many of those running >$10bn by themselves are star PMs, can make eight figures, but this is not likely close to the norm for equity PMs in the industry.

Interesting, IBPEHFVC...I assume you are saying that we would be surprised at how little they get? Is that right? I've also seen smaller equity funds in the 10-15B range that charge over 100bps. Why is this and how do they rationalize it?

I'm just saying that the average equity PM is not making >$10m. Funds can charge more to (small) retail investors. Institutional investors don't buy the same classes or shares as retail and if they're big they will pay much less in fees and often have a separately managed account. International funds charge more, because it's less competitive than domestic US and the rationale that more resources are required to invest in that strategy.

Would you say that the average equity PM makes at least $1 million? You said your firm makes 70bps. Is that the investment team compensation divided amongst the team?

100 bps is about average when you also include the load fees that the big retail funds charge. And comp ratios are much higher at smaller, employee-owned firms that don't have the absurd amount of overhead and extra fees associated with being a public company that places like Fido, T. Rowe, etc. have.

Average equity PM making $1m? Most likely. Median is probably an even bet, however.

At any rate, it's probably easier to talk to a headhunter to get more reliable data than trying to back into the number through the financials as we've tried to do here. The only reason I was entertaining this was because I cover the asset managers, and I've worked at a large public and a medium private firm.

IBPEHFVC,

What about all-in equity analyst compensation? Would you say that between 1 and 3 basis points of total fund assets is a good guess? So for example, an analyst at a prestigious buy-side firm working on a $2 billion dollar fund, would make between 200k-600k a year all-in?

I would doubt that analysts on average make as much as 600K - unless they've been with the fund for several years and are top performers. Analysts are more of a commodity and their pay correlates to AUM to a lesser degree than comp of PM.

Generally a portion of the fund's "expense ratio" is rebated as revenue sharing to various third party providers including the custodian or platform that the fund is trading through. So that needs to be taken into account before the other non-comp related expenses are deducted.

A little late to the party but my previous employer was a pretty big fund, standard fees, but known for having decently good comp. I was close to the main PM and I think a decent breakdown of how much he was pulling and how much the analysts had to split was probably something like this:

Gross Fees: 100bps Trading/BO/HR/etc Costs: 30bps 12-15 Analysts Split: 40bps (pretty graded based on experience, wouldn't be surprised if the tenured guys were getting 4-6 a piece and we were getting .25 to 1) 2 PMs Split: 30bps (probably close to 50/50... these dudes were raking)

AUM was in the 4-5B range

With some experience there's definitely money to be made here, but like some people have said the higher you go up the pay scale the more of your comp ends up in forms other than cash in your bank account. I only have the experience of an analyst with 1-2 years of experience but think this is a decent guess at what the breakdown was.

Does anyone know how to find the Equity PM's of those companies....Dodge & Cox, Wellington, BlackRock & T Rowe?

Cheers guys...

Dig on their websites...not that hard.

I was worried about getting a sarcastic reply! This info isn't usually just lying around on their websites. In my digging I came across this website (which I've used before), so thought I would engage on the forum here. Not to worry. Thanks Bigtime44!!

Buckeye2390:

I'm considering trying to break into buy-side Asset Management and was wondering roughly how much an equity portfolio manager at a good firm (I.E. Fidelity, Janus, American Century) can expect to earn all in per year? I've read that the average is around 500k, seems quite high.

Let me try to break this down for you.

1.  There is a big difference in money earned between big firms and small firms, and it is probably not what you expect.

Big firm Assume you are the CEO of an asset management firm like Fidelity.  Why do you think people buy your funds?

Is it because of your advertising?  Your salespeople?  Your technology?  Your brand?  Your fee level?  Convenience?  Your portfolio manager?  

Who is more valuable?  Your marketing department?  Your research department?  Your technology department?  Your portfolio manager?

How much do you think an outstanding portfolio manager should receive vs. a mediocre one?  How about a mediocre one vs. a less than average one?  Are you seeing large differences here? I'm not.

Given this, would you pay the PM a meaningful percentage of the revenue?  Not likely.  Most don't.

Small Firm Assume you are the CEO of a smaller firm.  Why do people buy your funds?  

Is it your brand?  Probably not.  Is it your advertising?  What advertising?  Is it your performance?  It can't be much else.

Who is valuable here?  Clearly the performance matters much more here and the PM gets a much larger share of revenues.  More importantly, the head of the firm is also likely to be the PM.  This person rakes in the dough.  Not because s/he is a great PM, per se, but because they s/he is a successful entrepreneur.  In any business, someone who took the entrepreneurial risk will make big money, if the firm is successful.  To be fair, the firm will likely only be successful if the PM generates positive alpha.

That being said, many mutual fund managers at big companies make well into the seven figures.  The ones who are likely to make eight figures are almost always entrepreneurs as well as PMs.

Pay is based on AUM In some ways, this is true.  All else being equal, a PM with a larger AUM will make more money.  If the PM is the owner of the firm, as AUM increases they will have leverage to the upside for their comp.  This is because the fixed costs are relatively low and the variable costs are mostly their comp.

If the PM is an employee, s/he will receive a smaller and smaller percentage of the incremental revenue.  If the AUM increases at a place like T. Rowe Price, 95% of that revenue will flow to the pre-tax bottom line.  Great for shareholders, not so much for PMs.

My main point is that you need to frame 'what is a good firm' differently.  Big doesn't mean too much, unless you like being a cog in the wheel.  Where your presence can have an impact, makes a huge difference.  If you are starting out, a good training platform is another important consideration.

The median mutual fund manager earns less than $500K.  The average is somewhere in that ballpark for the industry. For the larger funds at the big firms, almost all of those guys are earning seven figures. For sector funds and other smaller, much less, on average.

SB for that post.

SirTradesAlot - can you describe what a "good training platform" might be?