When Dmitry Balyasny, the founder of multistrategy hedge fund Balyasny Asset Management, spoke on Bloomberg’s Masters in Business podcast last month, he noted that a typical portfolio manager now “might be managing $2bn in gross market value” and expected to generate profits of $100m+ a year. It’s fine work if you can get it. But getting it is getting harder than ever.
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A report released this month by Freddie Parker and Vincent Lim in Goldman Sachs’ prime brokerage analytics team, said that while multistrategy hedge funds have grown headcount dramatically in the past five years, the pace of growth is slowing. And as the amount of money managed by individual portfolio managers swells, employment across the hedge fund industry is becoming skewed towards the non-investment professionals who support them.
Goldman’s charts below reflect the trend.
In 2017, Parker and Lim calculate that multistrategy hedge funds employed only 5,100 people. This year, they employ 24,000 people. However, the pace of multistrategy hedge fund headcount growth is the slowest since Goldman’s study began eight years ago.
Source: Goldman Sachs
At the same time, the proportion of overall hedge fund employees who are investment professionals and therefore actually managing money, has declined from 67% to 45% of the total. Hedge funds are both expanding more slowly than before and employing more support staff.
Source: Goldman Sachs
This is matched by our own research. For example, Qube Research & Technologies barely employs any portfolio management staff and relies instead on quants and technologists to code its strategies. Similarly, accounts recently filed by multistrategy firm Schonfeld in the UK show that headcount is divided between different teams as shown in the chart below. Last year, only 55 of 165 employees in Schonfeld’s London office were in portfolio management roles.
Source: Schonfeld Strategic Advisors UK LLP
If you want to get a portfolio management job now, therefore, good luck to you. Dmitry Balyasny’s suggestion of $100m+ profits on a $2bn portfolio may not be enough. Goldman says even median returns at multi-managers are closer to 9%. 90th percentile returns are closer to 17%. The top portfolio managers also generate their returns with sharpe ratios (measuring risk adjusted performance) of over two on a five-year time horizon.
Source: Goldman Sachs
This helps explain how it is that the handful of the best portfolio managers, who can manage huge portfolios and generate double-digit returns with limited risk, can command $50m+ pay packages when they’re hired.
Three years ago, Goldman says top quartile pay in hedge funds was 22% of profits and that the biggest portfolios were $563m. This year, Goldman says top quartile pay is 25% of profits and the biggest portfolios are $1bn+. At median returns of 9%, this implies that individual portfolio managers were making $11m as their share of profits back in 2022, but that they’re making $22.5m today. When these portfolio managers swap jobs, Dmitry says they must also be paid for sitting out the market on long non-competes, and for the costs of hiring a team. $50m doesn’t go far and you can’t hire many people on those amounts.
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