As I understand it, market rate comp for equity PMs is often set relative to their funds' AUM/revenue, sometimes by mostly by a mostly non-discretionary formula. However, I don't have a great sense for what a market-rate comp structure might look like. Does anyone have a sense?
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Hey Markov, I'm the WSO Monkey Bot and I'm here since nobody responded to your topic! Bummer...could just be unlucky but one of these topics will help shed some light:
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Fingers crossed that one of those helps you.
Can give you my 2c (at a public AM so PM comp is lower than private format since shareholders have to get a cut)
PMs at my firm are linked to their fund revenue and headcount. So for my group its $10bn AUM across 8 IPs, of which 2 are PMs.
Avg fee ~50bps = $50M revenue
Firm takes ~50% of that (this covers back office, widely used systems like Bloomberg/factset/etc and some, but not all, of our broker research + profit since they’re public) = $25M left over
From there, PMs comp us analysts, sales staff takes some cut, and pay for additional resources (expert networks, specialized research providers, data)
The rest is left for them to split.
On the above structure the PMs are each bringing home a couple million each - call it $6-7M. Going forward think about it as they get to keep 50% of each incremental dollar of fee they take in, subject to if they need to hire more people etc.
Comp structure varies widely but this is a flavor.
Many thanks, this is extremely helpful, and gives me a much better sense of what market rate compensation should be.
Now you can go ahead and ask for your $7M comp package tomorrow.
great answer
Clear to me - however I have read in other posts that MM PMs generally get paid around 2-3M. I am confused this is a comp for SM, MM, or what kind of structure?
LO AM
There are different models. There's one model (seems almost pod-like) laid out by another poster where PMs enjoy pass-through economics on their funds; this seems more unusual to me but I've seen it employed at some shops. However, at many long only asset managers comp is largely based on investment performance rather than AUM (with the belief that good investment performance should drive flows, and that poor investment performance is not worth paying a premium for regardless of how much AUM you manage because it will accelerate outflows).
Unless you have good investment performance, good client relationships, or a combination of both you have very little bargaining power as a PM (assuming you are not the owner of the business) as if you are not hitting one of those two value adds your likelihood of attractive outside options is slim-to-none anyways.
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