What is appropriate analyst compensation?

I have been with my employer (~$12B AUM long-only shop), picking stocks as the #2 person behind the PM for the last 5 years. Our fund is ~$2.5B of the $12B overall AUM.

I have my CFA and an MBA from a top program and 6 years of solid, relevant experience before that.

To be blunt, my stocks have kicked ass and my PM's stocks have sucked. We have a couple of newer analysts whose stocks have been neutral. On a net basis, our fund has slightly outperformed.

Given this information, I ask you, what is a FAIR number for my comp?
We only get salary and bonus, so no equity upside or anything like that.

Analyst pay at a Long only fund

In this particular example we will be examining the analyst pay. More specifically the pay of a top level analyst at a long only shop. Using the original posts specifications as guide we'll break down what the pay should look like.

  • Fund size: 2.5 b
  • Team size of 10 to 12
  • Making 25 m and retaining 40% (10 m)
  • Top man can expect between 20 and 25 percent
    • 10 m x .25 = 2.5 m
  • Top analyst in the team (#2 man) can expect between 5% and 7%
    • 10 m x .07 = 700k
    • 10 m x .05 = 500k

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Comments (18)

Jan 14, 2012

The subject of this thread is misleading because it's impossible for us to answer the question based on the information you provided (e.g., you didn't tell us how much you are getting paid). But, I'll guess: $300k all-in? If there is no financial incentive for you to pick good stocks, you shouldn't try. It's only fair.

Jan 14, 2012

I'm trying to understand how I should read this -- you have 11 years of experience, correct? Six before MBA and 5 at your current firm after? I would be very disappointed with 300K under that scenario. Mutual funds are not going to be the top dollar opportunities in the industry, but if you are contributing a lot you be paid more than that, especially across 12B. I'm not as familiar with the mutual fund side of the business but 300 sounds low.

Jan 14, 2012

MCC - I have changed the thread title because it is misleading, as you said. At first I was going to disclose my pay, but thought I would get a better series of responses by not putting that anchor out there.

Ravenous - Yes, 11 years experience total (6 prior to MBA at other employer, 5 at current employer after my MBA).

Thanks to both MCC and Ravenous. I will respond with my actuals after I have gotten some more responses.

Jan 14, 2012

How much money do you make? otherwise i cant help you

I eat success for breakfast...with skim milk

Jan 14, 2012

Honestly, pay can be extremely variable in this industry, so I don't think you are going to get better responses. I would have guessed at least $400-500K all in if you are contributing as much as you say, possibly more. I know plenty of people with less experience, fewer credentials, and worse performance that make more than $300K, although they are on the HF side, not MF.

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Jan 14, 2012

How many positions are in your fund? concentrated? are you using default screens etc...
Are you bottoms up, top down, who sets the investment themes etc..

again, it depends on your contribution to the overall system, not just the individual positions.

Jan 14, 2012

LAWM - Our portfolio usually has about 45 stocks, and I am responsible for about a third of that. We are bottoms up, long-term investors. I don't know what you mean by default screens - we have screening tools that we use, but that is a pretty rudimentary step. We are pretty theme-free, just trying to identify fundamental mispricings.

I don't know what you mean by "contribution to the overall system." I source the ideas independently, vet them with minimal oversight/mentoring from my PM or others, and decide when to add/reduce our position. In short, I am not just executing somebody else's ideas.

Jan 16, 2012

Seems like the classical "He's the Junior guy.. I'm the Senior guy therefore according to the rules, I get a big chunk out of his success".

I would think your focus should be moving up in the organizational structure, and hence potential payout.

Jan 22, 2012

My guess is 200-250K total.

Can you tell us now?

Jan 24, 2012

$2.5 bn at a long only shop is equivalent to $25mm in fees. Based off of VERY fuzzy numbers, maybe 50-60% of revenues will flow to compensation (I would benchmark 12.5bn in AUM against DHIL, Pzena, Artio, Calamos, etc and see what goes to compensation). After rent, brokerage, audit fees, third party marketing, etc, maybe 12-15mm is generated by your 2.5bn in AUM. The owners, back office, admins, programmers, etc have to be paid out of the larger pool of fees. Maybe that leaves 4-5mm for your team. Without knowing how many junior analysts there are, I would think the PM should clear 1-1.5mm and the #2 should clear 500k if you are performing well. I don't know of any specific figures for people in your range, but given the experience, credentials, and AUM, anything under 300k is totally inappropriate.

If the PM is picking shitty stocks and you are killing it, that is also something needs to be recognized. If you have a way to conclusively prove you are generating out-performance, you have a track record you can take other places. Whoever is above your PM would hopefully recognize your necessity and be willing to increase comp to keep you there if he knows you could possibly leave.

Feb 16, 2012

Gray Fox is getting us closer. Like he said, $2.5BB AUM for your fund should roughly equal $25MM in revenue, with ~50% flowing to compensation.

That said, we also need to know how many employees are at the firm. If the entire firm has 15-20 people - including client management, administration, etc - then you should be getting paid handsomely due to the lean staffing. But if you're closer to 50 employees then that will cut in significantly to total compensation upside.

It is just like using ROIC analysis for a company. For every $1 invested, how much are you getting back in profit?

Feb 16, 2012

This is really interesting and I would love to hear more from the OP

Feb 6, 2013

Any additional comments on this topic?

Feb 7, 2013

Are you flat or slightly up? Makes more of a difference than you think.

Feb 13, 2013

I try to suppose that about 40bps of the AUM end up getting passed around to the analysts, obviously that number scales upwards towards 60bps or even higher if that AUM is huge, since you get the operating leverage from rent and back-office staff costs being essentially fixed. So on your 2.5B, you're pulling in 25M and probably retaining about 40% of that, or 10M for the investment professionals. That sounds about reasonable based on my experience with funds in that AUM range, and I'd suppose that the #1 guy would usually scoop 20-25% of that if your team is average in headcount for a long-term value equity fund (meaning maybe 10-12 analysts...drop that 20-25% number a bit if you have a big team, like 20 or so, or have other mouths to feed on a variable comp basis) and the #2 should probably get you something like 5-7%, so I'd expect something in that 600-700K range if I was in your shoes and knew I was the one killing it, and that my PM knew that too. Hell, with 11 years total experience and a big year under my belt personally, I'd probably be only marginally satisfied with the 600-700K and would expect my PM to dig a little bit deeper and show his appreciation via a seven figure payday. Otherwise I'd start shopping around for someone who will pay you closer to your actual worth.

Feb 13, 2013

I think the people throwing out figures of 500K are way to high. It would have to be a small hedge fund with a lean structure to pay that IMO. I would estimate that its more like 200 - 250K all-in.

Also, if it is employee owned I would expect you will be getting more than say an asset management wing of a big bank. Also the location of the OP also matters.

    • 1
Feb 14, 2013

I think the people throwing out figures of 500K are way to high. It would have to be a small hedge fund with a lean structure to pay that IMO. I would estimate that its more like 200 - 250K all-in.

Also, if it is employee owned I would expect you will be getting more than say an asset management wing of a big bank. Also the location of the OP also matters.

Please don't comment on comp if you don't work in the industry.

Feb 13, 2013