NEW YORK (HedgeWorld.com)– A recent survey by the Association of Investment Management and Research, Charlottesville, Va., and Russell Reynolds Associates Inc., New York, shows that the most highly compensated investment professionals are those employed by hedge funds.

Hedge fund professionals earn 69% more than their peers in total median compensation. Money managers who work for mutual funds, insurance, and investment counseling firms also are near the upper end of the earnings continuum, the survey showed, while compensation is lowest at banks, endowments, and pension consulting firms.

The survey also revealed across-the-board declines in investment professionals’ compensation during the current economic downturn. Base salaries have remained relatively constant, but incentive compensation declined 38%, with median cash bonuses falling from US$50,000 in 2001 to US$30,800 in 2003. In the case of hedge fund and mutual fund companies incentive compensation accounted for nearly half of the median total compensation.

“The economy has brought about a fundamental change in the way organizations approach incentive compensation,” said Debra Brown, a managing director in the investment management practice of Russell Reynolds. “These findings indicate that investment management professionals’ compensation is more closely tied to the overall success and profitability of the parent organization than ever before. While individual performance still matters, limited resources and a shrinking bonus pool are universally felt.”

The survey broke down the effects of the downturn according to job function, and revealed that professionals responsible for managing or analyzing assets on a global basis experienced the sharpest drop. Global equities securities analysts saw their median compensation decline 33%, from US$230,000 to US$155,000. Global equities portfolio managers saw a decline of 40%, the greatest single two-year drop in all job categories.

“While AIMR members continue to be well compensated, they–like their firms and like their clients–are feeling the ripple effects of a bear market reflected in their overall compensation,” said Raymond DeAngelo, vice president of AIMR, in a statement.

Experience, Sex, Region, Other Factors

Experience remains, as always, a critical factor in determining compensation. In the United States, investment professionals with five or more years experience earned a median total compensation of US$171,650, or 16% above the industry median. That figure was US$205,000, or 39% above the industry median, when years of experience exceeded 20.

Across all levels of experience, women earn less than their male counterparts. The gender gap is 13%, and that has held constant during the present downturn. In the 10-to-20 years experience group, though, the gap has narrowed, from 19% in 2001 to 15% now.

Investment professionals in the northeastern United States are the most highly paid, out earning their Dixie-located colleagues by 35%. The survey also made some international comparisons. Investment professionals in the United Kingdom and the United States are the highest earners. Those in Switzerland and Japan fell in the middle of the pack. Those in Singapore, Hong Kong, and Canada trailed.

Other factors affecting compensation are the size of organization, job responsibility, and a professional’s designation as a chartered financial analyst.

This year, for the first time, the survey sought to measure the professionals’ attitudes toward their compensation. The AIMR and Russell Reynolds survey described those attitudes, in a word, as “realistic.” Forty-eight percent report feeling “fairly” compensated, and a similar amount reported they felt “underpaid.” Those who felt underpaid generally were those below the median. Unsurprisingly, few professionals reported feeling that they were overpaid (2%).

The Management Compensation Survey results were based on responses from nearly 16,500 AIMR members.

CFaille@HedgeWorld.com