How much do equity portfolio managers make?

Buckeye2390's picture
Rank: Monkey | 31

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.

How are Equity PMs Compensated?

While equity portfolio managers make a considerable amount of income, the all in comp will vary firm to firm. Some firms may offer different base salaries with a performance bonus that is a certain percentage of their annual performance. The numbers may also be a different depending on basis points (bps) and assets under management (aum).

User @Gray Fox, a hedge fund analyst, provides a very in depth example on how an asset manager would be compensated (note that these are hypothetical examples as what defines a large firm is subjective):

Gray Fox - Hedge Fund Analyst:

If we define an equity fund in excess of $1bn as large, that is $10mm a year in fees. This $10mm in fees equals $5-6mm in compensation. Mutual funds have to pay accountants, traders, HR, admins, legal, etc, on top of the investment team. Lets conservatively say analysts and PM's take home 70% of overall comp...This leaves $4.2mm in fees do support the investment side of a $1bn mutual fund. If 7-10 analysts get half of that, and the other half goes to 2-3 PM's (lets say 1 main and 2 secondary), the head PM is taking home 1-1.5mm a year. For the main guy to take home 8 figures, AUM for the fund would have to go up 8x or so.... There are not a ton of equity funds in the US running $8bn+ in AUM.

Here is a generic snapshot of what portfolio manager's salaries are based on years of experience.

If you have any more information regarding how specifically portfolio managers are compensated please comment below!

You can learn more about Hedge Fund compensation with the Wall Street Oasis Hedge Fund Industry Report.

Looking to Break into the Hedge Fund World?

Want to land at an elite hedge fund use our HF Interview Prep Course which includes 814 questions across 165 hedge funds. The WSO Hedge Fund Interview Prep Course has everything you'll ever need to land the most coveted jobs on the buyside.

Hedge Fund Interview Course


Comments (41)

Jan 1, 2012

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.

Jan 1, 2012

above is correct, 500K is low

Jan 2, 2012

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

Jan 2, 2012

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).

Jan 16, 2012

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?

The Market Can Stay Irrational Longer Than You Can Stay Solvent

    • 1
Learn More

Boost your resume and land a finance job by passing the FINRA SIE. 264 pages & 1981 smart flashcards written by a former 8X top Fidelity instructor. Try it for 0 bananas here.

Jan 18, 2012
ezbentley:

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?

Their pay is generally based on AUM. If poor performance drives away investors, they will get fired.

Mar 8, 2012
ezbentley:

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?

Human psychology. That sounds trite, but it is true. It is that way because investors are willing to pay it. The question you're really asking is why are investors dumb enough to pay it. If investors all did the smart thing and fled mutual funds into index funds, they would outperform and at a much lower cost. But a stock broker is the same as a preacher is the same as a witch doctor; they all claim to be the gateway to some higher and more complicated force that you can't understand without their help (for a certain number of dollars or conch shells, of course). It is engrained in our DNA to believe them, and we do. Why do preachers continue to draw huge dollars when they are unable to get your prayers answered? How many centuries have witch doctors been unable to heal and yet were still regarded as the community leaders?

Where are all the customers' yachts?

    • 1
Jul 27, 2012
WBuffettJr:
ezbentley:

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?

Human psychology. That sounds trite, but it is true. It is that way because investors are willing to pay it. The question you're really asking is why are investors dumb enough to pay it. If investors all did the smart thing and fled mutual funds into index funds, they would outperform and at a much lower cost. But a stock broker is the same as a preacher is the same as a witch doctor; they all claim to be the gateway to some higher and more complicated force that you can't understand without their help (for a certain number of dollars or conch shells, of course). It is engrained in our DNA to believe them, and we do. Why do preachers continue to draw huge dollars when they are unable to get your prayers answered? How many centuries have witch doctors been unable to heal and yet were still regarded as the community leaders?

Where are all the customers' yachts?

Couldn't have said it better.

"An investment in knowledge always pays the best interest" --Ben Franklin

Jan 17, 2012

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

Feb 29, 2012

bump

Mar 1, 2012

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

Best Response
Mar 3, 2012
xqtrack:

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

This is a pretty bold estimate. Asset managers typically pay out 55-60% of revenues in the form of compensation, and target 25-30% operating margins (with the difference coming from rent, bloomberg terminals, third party administrators, etc).

If we define an equity fund in excess of $1bn as large, that is $10mm a year in fees. This $10mm in fees equals $5-6mm in compensation. Mutual funds have to pay accountants, traders, HR, admins, legal, etc, on top of the investment team. Lets conservatively say analysts and PM's take home 70% of overall comp. I am not one to knock on the back office, the work they do is incredibly important, but at the end of the day guys who come up with ideas and manage risk are the ones who get paid. This leaves $4.2mm in fees do support the investment side of a $1bn mutual fund. If 7-10 analysts get half of that, and the other half goes to 2-3 PM's (lets say 1 main and 2 secondary), the head PM is taking home 1-1.5mm a year. For the main guy to take home 8 figures, AUM for the fund would have to go up 8x or so.... There are not a ton of equity funds in the US running $8bn+ in AUM.

These are all very rough, back of the envelope numbers. I realize there are special situations where guys will make a lot more than what I have described, but the basic economics do follow this logic.

    • 4
Mar 4, 2012
Gray Fox:
xqtrack:

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

This is a pretty bold estimate. Asset managers typically pay out 55-60% of revenues in the form of compensation, and target 25-30% operating margins (with the difference coming from rent, bloomberg terminals, third party administrators, etc).

If we define an equity fund in excess of $1bn as large, that is $10mm a year in fees. This $10mm in fees equals $5-6mm in compensation. Mutual funds have to pay accountants, traders, HR, admins, legal, etc, on top of the investment team. Lets conservatively say analysts and PM's take home 70% of overall comp. I am not one to knock on the back office, the work they do is incredibly important, but at the end of the day guys who come up with ideas and manage risk are the ones who get paid. This leaves $4.2mm in fees do support the investment side of a $1bn mutual fund. If 7-10 analysts get half of that, and the other half goes to 2-3 PM's (lets say 1 main and 2 secondary), the head PM is taking home 1-1.5mm a year. For the main guy to take home 8 figures, AUM for the fund would have to go up 8x or so.... There are not a ton of equity funds in the US running $8bn+ in AUM.

These are all very rough, back of the envelope numbers. I realize there are special situations where guys will make a lot more than what I have described, but the basic economics do follow this logic.

I don't know about 1 billion being the threshold for big strategies. I don't think my firm has many strategies that are smaller than 1 billion other than a few small cap strategies and one or two unique SICAV only strategies. Note I said strategies which include the main fund and the separate accounts that tracks the main fund.

When we talk about big strategies we usually refer to our 10B-20B strategies and when we talk about the biggest strategies we usually refer to our 20B+ strategies. Even some of the sector strategies have well over couple billion in AUM.

Mar 3, 2012

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?

Mar 4, 2012

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.

Mar 5, 2012

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.

Mar 6, 2012

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.

Mar 10, 2012

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...

Mar 12, 2012

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.

Mar 12, 2012

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?

Mar 12, 2012

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.

Mar 13, 2012

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?

Mar 13, 2012

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.

Mar 13, 2012

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.

Mar 14, 2012

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?

Mar 20, 2012
Buckeye2390:

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 don't think it makes sense to look at analyst comp based on AUM...too many variables to consider. An analyst at a post-MBA entry point at a "prestigious" buy-side firm would start ~175k-250k then scale up from there depending on performance, but 500k-700k after several years of good performance would not be unexpected. A good performing longer tenured analyst would probably be pushing 700k-1m which is closer to PM-type of comp. Obviously, the higher it gets, the larger the portion of comp is deferred and/or equity-related

Mar 15, 2012

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.

Mar 20, 2012

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.

Mar 31, 2012

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.

Jun 21, 2012

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

Cheers guys...

Jun 21, 2012

Dig on their websites...not that hard.

Jun 21, 2012

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!!

Jun 25, 2012
chopstiks:

I was worried about getting a sarcastic reply! This info isn't usually just lying around on their websites.

They are. Dont be lazy. Every firm puts info out on all their funds open to retail on their website and they always include the pm's name, track record and morningstar info.

Jul 28, 2012
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.

    • 2
Jul 30, 2012

Excellent post, thanks!

Sep 7, 2012

SB for that post.

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

Sep 8, 2012
tkaelle:

SB for that post.

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

I'm assuming you mean to become a portfolio manager?

Normally, spending time on the sell side in equity research will be the best place to start. Finding a portfolio manager with a great process who is willing to teach is the next place. Those are harder to find. I would say, it matters less about the firm and more about the person or team you're working for. That's where you can learn a lot.

Sep 8, 2012
Comment
Sep 8, 2012
Comment