Incentive compensation, or bonuses, paid out to professionals in the asset management industry are generally expected to decline on a year-over-year basis in 2022, according to a report issued Thursday by Johnson Associates, a compensation consulting firm.
Excluding the impact of inflation, bonuses paid to professionals in traditional asset management firms are projected to decline by 15% to 20% by year-end 2022 compared with the prior year-end, due to declines in assets under management and revenues falling on market declines and “active equity outflows.”
For professionals at megasize private equity firms, bonus payments should be flat or decline by 5% compared with last year, the report said. Those employed at mid- to large-size private equity firms are likely to see their bonus payouts slip by 5% to 10%, the report noted, citing that fundraising and deal-making are “down significantly” from 2021 levels.
Mega private equity firms are those with at least $50 billion in AUM, while mid- to large-size firms are those with between $5 billion and $50 billion in AUM, a Johnson spokesman said in an email.
Bonus payments to professionals serving high-net-worth clients are expected to decline by 10% to 15% on a year-over-year basis as “positive flows” will be “offset by poor market performance.”
However, the report noted that one class of financial professionals will actually see their bonuses increase — hedge fund professionals at macro-quant shops are expected to see bonuses fatten by 10% to 20%-plus this year. Johnson Associates cited continuing inflows as hedge funds outperform broader markets, led by macro and quant strategies, as investors are seeking yield in a volatile market.
Still, hedge fund professionals with equity strategies are expected to suffer a 10% to 15% decline in their bonus packets this year compared with 2021.
The bonus projections have generally worsened since Johnson’s last report issued May 5. For example, in that earlier report, the consulting firm projected that bonus payments to professionals at traditional asset management firms would fall by 10% to 15% (a figure which has now been revised to a 15% to 20% decline).
Chris Connors, a vice president at Johnson Associates, said in an email that these worse projections can be attributed to “poor performing markets” and asset outflows in the second quarter.
However, despite the lower bonus payments expected to be handed out this year, base salaries at asset management firms are expected to be 5% higher than in 2021.
“As firms are balancing inflation and impending incentive declines, they are budgeting 5% for salary increases to help retain talent,” Mr. Connors said.
With respect to other aspects of the traditional asset management industry, Johnson Associates said in its latest report that the “war for talent” is slowing and that overall head count will “decrease as firms scale back after increasing head count in 2021.”