What determines buy side analyst compensation?

We started FPIA Partners a little over 3 years ago and during that time we have met with almost 500 buy side equity analysts of varied levels of experience, ranging from 2 years to 30 years. Most of the analyst candidates we have interviewed work in International or Global equity research, with a minority in domestic equities.

Wide range

We have been consistently surprised by the wide range of compensation for the job at similar looking firms. This range can be as much as 400% from bottom decile to top decile for the same experience level at the same nature of firm (long only or hedge fund).

How much are analysts paid?

For the purposes of this note, we will focus on analysts with 7-10 years of buy side experience, most of whom will have a CFA charter and/or an MBA. At long only firms the range of total compensation that we have seen is from $200K to $1.5M, at hedge funds the range we have seen is from $150K to >$3M.

These are obviously very wide ranges, but we would estimate the median at $350K for long only analysts and at $275K for hedge fund analysts

What are the components that determine analyst compensation?

The key drivers for compensation are size of assets/profitability of the firm and the culture of the organization. Broadly speaking, the larger the AUM of the firm and the more profitable the firm, the better paid are the analysts. Profitability can be a more reliable indicator of compensation than size of AUM and this is particularly true for hedge funds.

There is more uniformity of compensation at very large long only asset managers than at smaller ones, but even between the large firms there can be a two to one differential for similar looking analyst jobs at different firms.

At hedge firms, the compensation is much more variable than at long only funds, the vast bulk of such compensation will come from bonus/profit share in good years. Hedge fund employees can be particularly sensitive to a “generous boss or greedy boss” factor.

Most firms compensate based on salary and discretionary bonus, while some have an objective component based upon performance of the fund or based on analyst’s recommendations. Hedge funds tend to use more objective criteria and long only managers tend to use more subjective criteria.

We at FPIA Partners are always keen to meet talented individuals who work in the equity industry. We will respond to anyone who reaches out to us by e-mail to info@fpiapartners.com

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