Why do AM pay so much less than IB?

From what I've seen, bonuses for junior people at great firms like BlackRock are nothing compared to what they could be getting at banks. Is this just because AM is so many fewer hours?

For reference most banking bonuses I've seen are like 50%-70% of base while AM makes like 20-40%. This equates to a huge difference in all in comp. I believe that average banking MDs make more than average PMs too at larger funds.

Can anyone explain this?

 

Don't mean this to sound harsh but how are IB and AM comparable? They are two completely different jobs and just both happen to be in the finance realm. Other than that, nothing about the revenue generating aspects of IB and AM are similar so why would the pay in IB correlate to the pay in AM?

There is really no explanation other than that they are completely different jobs and therefore have no relation to one-another.

 
WhaleofWallStreet:

Don't mean this to sound harsh but how are IB and AM comparable? They are two completely different jobs and just both happen to be in the finance realm. Other than that, nothing about the revenue generating aspects of IB and AM are similar so why would the pay in IB correlate to the pay in AM?

There is really no explanation other than that they are completely different jobs and therefore have no relation to one-another.

I see your point, but at the junior level the two fields do compete for the same talent, so the disparity cannot be leaps and bounds wide.

 

Lumping all AM gigs into one bucket isn't a meaningful exercise.

It depends on the fund, the strategy, and how much pie there is to go around. Not all of us - who were once on the sell-side - jumped ship to earn far less money. There are def hitters at the senior level.

At my company, mid-level hires (call it equivalent to VP) earn about what high performing 2nd-year associates at a BB make. Analysts with maybe 1-3 years of experience earn closer to low-100s all-in. At the senior level, it is high variable and based upon performance.

 

Because bankers produce more revenue per employee with less cost per employee than long only Asset Management. Leaving hedge funds or other alt AM completely out of it, what are the actual management fees net of sales fees paid for plain Jane AM? When you get into big institutional fixed income AM you're talking basis points. Factor in ancillary costs of research, trading, etc. and the PM isn't going to be paid like a senior banker. Senior bankers at BB's are expected to produce ungodly amounts of revenue and they do it with a relatively lean staff. You get paid the bigger bucks in this business, and in life in general, when you produce more. That trickles down to the most junior person on the team. It's also more competitive to land an IB gig and people are willing to do whatever it takes to get them and keep them, including working a shitload of hours.

However, AM generally has better hours and is a much steadier career. Stop producing in a senior IB role and you're gone no matter how good you were a couple of years before. In long only AM I haven't heard of too many guys blowing their books up and getting canned (unlike in the HF world where it happens all the time-but like I said, none of the above applies to HF's). And I'm sure there are exceptions to everything I've said above and some long only shops pay incredibly well.

 

More competitive to get into IBD than top Asset Management is a total lie. Top asset managers may hire only a few people a year. I have seen people get rejected by the likes of Fidelity, BlackRock and Wellintong and then ending up landing a job at Goldman or MS IBD. With the immense amounts of analysts BB's hire each year landing a job in IBD BB is really not that hard if you're reasonably capable. Top AM firms just hire very few people.

 
Best Response
Dingdong08:

Because bankers produce more revenue per employee with less cost per employee than long only Asset Management. Leaving hedge funds or other alt AM completely out of it, what are the actual management fees net of sales fees paid for plain Jane AM? When you get into big institutional fixed income AM you're talking basis points. Factor in ancillary costs of research, trading, etc. and the PM isn't going to be paid like a senior banker. Senior bankers at BB's are expected to produce ungodly amounts of revenue and they do it with a relatively lean staff. You get paid the bigger bucks in this business, and in life in general, when you produce more. That trickles down to the most junior person on the team. It's also more competitive to land an IB gig and people are willing to do whatever it takes to get them and keep them, including working a shitload of hours.

However, AM generally has better hours and is a much steadier career. Stop producing in a senior IB role and you're gone no matter how good you were a couple of years before. In long only AM I haven't heard of too many guys blowing their books up and getting canned (unlike in the HF world where it happens all the time-but like I said, none of the above applies to HF's). And I'm sure there are exceptions to everything I've said above and some long only shops pay incredibly well.

A quick glance at LAZ 2014 financials tells the story. Also, keep in mind that LAZ is certainly in the top 10 (#4) in M&A, they are decidedly not in the top 10 in terms of long only asset mgr biz or AUM. Virtually all of the top banking shops are now public, but a fair amount of top asset mgrs are not, so data can be murky.

"bankers produce more revenue per employee..." -- Not true. Revenue/MD is $8.7m in Advisory vs. $13.8m in AM, and $1.4m per employee in Advisory vs. $2.3m per in AM. LAZ AM is an institutional shop so they'll have less headcount than retail shops but that's also going to be lower revenue capture on assets. Could be that MD title is thrown around loosely in Advisory but not likely given Street follows this metric closely.

"...with less cost per employee" -- Non-comp expense per employee in Advisory is $180k vs $340k in AM. This seems true, however, interesting that as percent of revenue it's roughly the same margin, 15%. Remember soft dollar pays for a lot as well.

"big institutional fixed income AM you're talking basis points." -- Irrelevant, unless you want to compare AUM to deal value, which would be quite the losing fight for the banker. M&A volume typically = 6% of AUM globally. At any rate, do you think LAZ gets more basis points on it's larger fixed income mandates or on the $45bn Kraft deal? Probably less than 10bps on that deal.

"It's also more competitive to land an IB gig" -- this is not true, certainly out of b-school

"better hours" -- true

"steadier career" -- maybe

"I haven't heard of too many guys blowing their books up and getting canned" -- you haven't been listening

At the end of the day, my first point is a bit facetious. Banker's have more control over their revenues, or another way of saying that is those clients/fees will much easier follow a banker to another firm than AUM will for a PM, which is a stickier business. So bankers can shop around easier and exhibit more power over their paymasters and earn better comp/rev ratios.

 

I think this is highly variable based on AUM, but PMs at the bigger asset managers clear at least as much as banking MDs when running smaller funds and way more when you are one of the top guys. This is for working 40 hours a week (and obviously assuming you are good). Not every asset manager pays below IBD at the junior levels either, though on average it seems like that is the case.

 

Few comments:

-AM is around 60 h a week I'd say, often more. -Saying that BlackRock is more competitive than GS IBD is not really true. Depends on the group really but most of the time it is harder to break into IBD at top BBs, at least at analyst level. Honest opinion here, I know plenty of people in both AM and IBD at top places. Maybe some AMs are more picky and people at entry level positions have to have better understanding of the work or something, but usually the top of the class goes to top groups at BB/EBs. Most of the people I know at big AMs mentioned above would have hard time getting a spot at top BB/top group but they were excellent fit for their AMs and tailored their profile towards that. -I don't think that there is correlation between pay and AUM. Example with poor bonus that I mentioned above is at M&G and Fidelity. AM Sales people especially get shitty pay at junior/mid level, even if the firm is performing great in that year.

 

What do you mean there is no correlation between pay and AUM?

AUM is probably the largest contributing factor to pay - even more than performance. A flat management fee % is guaranteed money on the table. Low headcount and high AUM = bigger payout.

Can't speak to your Fidelity or M&G experiences but keep in mind there are different size AUM funds within those organizations so we would have to know which specific funds you were referring to and how many people were in the group. Performance fees are an added bonus if things go well.

 

I'm not sure how junior comp works in AM. But speaking for post-MBA roles, there is no difference between AM comp and banking from what I can tell. Analysts in AM will clear $250k - $1mm depending on tenure, PMs are virtually always going to be $1mm+ at the big shops, and those running large funds should be into the eight figures (those would be exceptional cases obv). I honestly don't have a good sense for what a bb MD is making these days, $1-2mm? I think that is probably roughly similar to most PMs at large AM shops (probably low $1mm's). They are both stressful jobs, although hours are typically going to be 30% less in AM. Probably a higher risk of getting fired after a bad year as a senior analyst in AM than as a VP/Director level banker, but that is just speculation.

 

I don't want to put too fine a point on it since every firm will be different. In general those #s were for large AM shops... can't really speak to the smaller shops although I'm sure the economics can be quite good at some of those as well. I'd guess that the top of range firms (Capital, Fido, Dodge etc.) probably better than the numbers I listed above.

In general I think 1st year post-MBA everyone is pretty range bound. Call it $225-275k all in. 2nd year could be in the $300-$450 ballpark. From there the dispersion gets wider as performance drives more comp differential.

 

I just moved to an AM from a tier 2-3 bank and from the experience I gathered is that pay in AM varies even within the firm. I am in the total return fund which is meant to generate high returns using arbitrage strategies, similar to a hedge fund but without taking as much leverage as a hedge fund would do. Base is similar to the one I had in the bank but bonus potential is very big. Within the firm we also have passive funds, insurance funds, pension funds whose job is just to replicate an index or match duration etc. There bonus is low, below that of a bank. In terms of hours, the bank had longer hours but now I don't have as much wind down time as before. It's like working on a live deal constantly

 

There have been other threads on this but MBA recruiting for top AM shops is in a different stratosphere of difficulty than BB IBD. There is equal competition for maybe 10% of the jobs. When you factor similar pay, better hours and better career security, this seems obvious. The only possible downside is that these jobs are not NYC centric, if that's your thing. Think Boston, San Fran, LA, Baltimore.

 

Can’t give you exact numbers, but I work at an AM/HF in a major city and compared to IBD (same city), I make about 10%-15% less.

As for hours, I work 8AM-10PM (approximately), Mon to Fri. No weekends but there is the occasional Saturday from what I’ve been told but haven’t seen any myself (not yet ateast).

 

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