Salary Trends & Insight in Hedge Funds

Welcome to my first newsletter article! I’m Caitlin, a headhunter in the Core Tech team at Durlston.

I’m hoping to bring clarity to recent salary trends in the hedge fund industry, following conversations with many candidates who are confused as to what expectations are ‘reasonable’ and how to frame them to a potential employer.

Reluctant as I am to make too many broad generalisations, it’s no secret that the hedge fund industry is tremendously lucrative. Engineering roles in hedge funds are highly coveted, not only for the high salaries they command but for the access to cutting-edge technology that the funds’ deep pockets provide. A side effect of the competition for spaces at such firms is the high calibre of engineers within them – an added incentive for those who wish to learn their craft from the best in the industry – with many engineers boasting first-class degrees from top global institutions, awards, and ambitious extra-curricular activities, such as starting their own trading firms “for fun”.

Given the intensity of work needed to secure a spot in a hedge fund, it’s reasonable to expect high compensation, but the global talent war of 2022 led to unprecedented salary increases across the board, skewing the usual pay increase prediction.

Having done a fair amount of research, I’ve concluded that making sweeping generalisations around compensation expectations will likely lead to more confusion. Base salaries vary significantly from firm to firm, with different compensation structures (base-bonus ratio, additional benefits, guaranteed vs discretionary bonuses…) further muddy the waters. Instead, this piece will explore some of the context around current compensation trends, as well as some additional factors to consider beyond salary.

Understanding The Current Climate

Also known as ‘Why can’t I get the same salary rise I was offered in 2022?‘

“Total assets under management for global hedge funds rose from $3.8 trillion in 2020 to $4.8 trillion in 2022″ according to data from BarclayHedge.Strong returns in 2022 put top hedge funds in a prime position to invest in talent and tech, and the ensuing ‘quantification’ of top funds is driving industry-wide innovation as smaller funds seek to retain an edge in a competitive market.

However, whilst the demand for exceptional engineers continues to grow at an exponential rate, regulatory action, and inconsistent fund performance, among other factors, have capped the vast increase in compensations seen during the height of the talent wars. So where does this leave us?

2024 Benchmarks – Hedge Funds

Base salaries

• Vary from firm to firm, but technologists at top funds are broadly capped at around £200k on the base – with further rises reflected in bonuses as they gain seniority. If you’re making a move, be aware that most funds won’t offer you an increase on your base salary beyond 20%.

Bonuses

• The latest compensation report from Wall Street pay consultant Johnson Associates predicts that hedge fund bonus pay is likely to remain flat across the board from 2023 – 2024, with equities-focused funds potentially paying more.

Different Funds, Different Expectations

Smaller funds can rarely offer the same compensation packages as their well-known counterparts, but necessity breeds innovation. Whilst less competitive in cold hard cash, they maintain an edge by offering benefits such as greater ownership over projects, a more collaborative working environment, earlier access to complex technical challenges, and a faster career growth trajectory.

We’ve also seen firms diversifying by location, either by choosing areas with lower cost of living – leave London/the commuter belt and see your expenses decrease by up to 60% – or by setting up in a low tax zone.

“The rise of Dubai as a hedge fund hub has been a notable industry trend since the global pandemic, as firms in traditional hubs like New York and London choose to open outposts in the emirate and other Middle Eastern locations.” according to an article by Hedge Week.

Consequently, hedge fund growth in the UAE has been a notable industry trend, with many of our client base setting up in Dubai and Abu Dhabi. Amongst other benefits (sunshine, safety, seaside etc.), setting up in Dubai gives funds access to talent at a lower cost, with tax-adjusted salaries becoming the order of the day.

Looking Beyond Salary

There’s an instinct to make salary thepriority when entering a job search, particularly in the current economic climate. Caught between a rock (inflation) and a hard place (interest rates), many candidates have begun to underestimate or ignore important factors in a job search. On a base level, company culture, progression opportunities, benefits, long-term security, and work-life balance seem to be obvious considerations – but a deeper understanding of the industry at large is crucial in determining whether the role you’re considering can offer what you’re looking for.

If you’re lucky enough to secure offers with more than one firm, but the differences in pay are incremental, looking to the long-term growth potential is a wise move. For stable long-term growth in a period of economic uncertainty and global instability (not to put a downer on things) then you may want to focus your attention on “the new, superior fund-of-funds” i.e. The Multi-Strat. Invented by Ken Griffin at Citadel with the central aim of “minimising volatility from one month to next”, they could be a relatively safe bet.

If you’d like to focus your attention on a high-growth area with consistently evolving technical challenges, systematic and quantitative funds are investing heavily in AI and ML to give them the edge. Bonus points for limited legacy tech and knowing you’re the most valued player.

Speaking of high growth, crypto hedge funds that survived the tumultuous conditions of 2022 are “not just recovering but flourishing”. While increased regulatory scrutiny has slowed growth in some areas of finance, the shift for crypto is “a stark contrast to the uncertainty surrounding digital assets just a year ago and could be a major factor in the projected success of crypto hedge funds in 2024.”

Takeaways

To conclude, hedge funds remain highly lucrative, but will no longer offer the kind of salary jumps we saw in 2022. If your only motivation for joining a hedge fund is the compensation, you know where to look – but expect trade-offs in other areas. (Hint: engineers working in certain funds don’t have much time to spend the money they earn.) If access to technology is your main driver, it’s worth looking at funds investing heavily in their tech – perhaps compromising slightly on direct investment in talent.

Ultimately, taking an informed, insight-driven approach to your search will likely yield greater long-term satisfaction and bring you closer to your career goals. If you’d like to discuss your aspirations with industry experts and devise a strategy to help you achieve them, get in touch.

Written by Caitlin Mulholland