Category Archives: Buyside and Sellside

Hedge Fund Exodus?

Movement of rich people

Exodus - movement of the people

News this week is that everybody’s favourite economy stimulator, the EU, is now looking at legislation that will curb bonuses in the hedge fund and private equity business.

Here’s the link, but basically the Stasi ESMA (European Securities and Markets Authority) have realised that banker bashing only targets one section of the financial markets and that there are other “senior executives” in London whose pay they want to “bring in-line” with the remuneration policies of the investment banks.

This is another totally unhelpful attack on the UK economy from EU, and if they go ahead I can see many funds simply upping sticks and relocating to the Caribbean or the Far East. Many funds are already domiciled, or at least partly based in offshore locations, and a vicious grab on their pay is simply likely to push them further abroad faster. The Government apparatchiks just don’t seem to understand that today each country is like a camping-site: they provide a patch of suitable ground and some basic amenities but ultimately you can pitch your tent anywhere. In the UK we are lucky to have one of three of the world’s leading global cities and we need to realise that this is precious thing and not some entitlement that can be abused according to the latest Brussel’s fad.

Now the FSA is trying to work out how these rules could be applied to the UK, so watch this space.


Why are bonuses so much higher in Asset Managers than Investment Banks?

I work with a number of Asset Managers, and often talk to developers who currently work for Investment Banks about making a transition into the buyside. A concern that comes up again and again is the bonus – developers who work for the banks often struggle to believe that the bonus at an Asset Manager really is larger than at a bank. And its easy to see why, after the last 3 years of low to non-existant bonuses, many developers now only value the money in their hand – the fixed income before bonus – rather than promises of a bonus that in their experience may not materialise.

But the fact is that ever since the financial crash in 2008 bonuses across the buyside have remained steady. So why is that?

The primary reason that the buyside tends to pays higher bonuses than the investment banks is because the blame for the 2008 crash was landed squarely on the investment banks (although to be honest I don’t remember Northern Rock ever being part of the “bulge bracket”), and since then the banks have been placed under an increasingly heavy weight of regulations – Solvency II, MIFID II, Basel III, and Dodd-Frank are probably the most well known.

This has had a two-sided affect upon bonuses, one is that there is simply less money to go around due to lower profits, and two is that bonus payments are actually being restricted by regulations and the general scrutiny that banks are placed under by the press. Most of this is aimed at the traders and senior management, but the affects have obviously trickled down to all employees.

More money to go around
The fact is that there is simply more money on the buyside than at the investment banks. Not only have hedge funds and asset managers continued to be profitable in the last 5 years (with the notable exception of Man Group), but due to lower numbers of employees working in the buyside the ratio of money to employees is far more favourable. Playing around with some figures (market cap to employees) I worked out that actually BlackRock has a value of around $4 million per employee vs JP Morgan’s $700 thousand.

(I compared the market cap figure because a) it was easy to get hold of and b) it is a good indicator of what the company is valued at. Yearly profit would obviously be a better figure, but profits are released quarterly and I felt I was biting off way more than I could chew by adding them all up – any help would be appreciated!! My full figures below:

Market Cap: $39.91bn and AUM: $3.67 trn
Over 9,800 global employees
Market cap to employees: $4,072,448

Market Cap: $ 176.54bn and AUM: $1.4trn
Over 250,000 global employees (Figures from the “Report of the Review Committee of the Board of Directors”)
Market cap to employees: $706,160