Total cash compensation for general counsels at most hedge fund managers tends to range between $500,000 and $2 million. The average total cash package for a general counsel is close to $1.1 million. There are outliers at the top end of the range, however, and I know of several GC's earning well north of $3 million.
This is welcome news for in-house counsel at the larger, more complex and better performing hedge fund managers.
The market for the highest quality legal talent tightened in 2014, with star performers in the in-house counsel ranks at hedge fund managers having more options than in previous years. Competition for top talent is coming from other hedge fund managers, private equity firms, proprietary trading firms and alternative asset managers.
Increased demand and tightening talent supply is keeping a bid underneath general counsel compensation packages. In addition, hedge fund managers looking to fill a general counsel (or chief compliance officer) spot with a proven, high caliber attorney are under more pressure to shorten their evaluation timeframes and act quickly and competitively in extending offers or risk losing short-listed candidates to competing opportunities.
Overall, 2014 was a good year in the hedge fund industry. Through the end of November 2014, the industry's total assets under management rose to a record $2.85 trillion. Net inflows are at their highest levels since 2007.
My firm’s alternative asset management search practice was very busy in 2014, with hiring for legal talent undergoing a clear uptick. Moreover, the pace of in-house legal hiring in the hedge fund industry accelerated – a distinct change from the slow and steady growth of the previous two or three years.
Base salaries for hedge fund general counsels typically range between $250,000 and $325,000, with the balance payable as a year-end cash bonus. If the GC is a partner of the firm or a member of the firm's executive or senior management committee, he or she will also participate in profit sharing (i.e., a percentage of the performance fee income) or be granted equity in the manager.
Chief compliance officer compensation tends to range between $400,000 and $1 million, all in, with the average total compensation package about $700,000. This is primarily in cases where the hedge fund CCO is an attorney. As with the GC, there are notable outliers at the top end of the range, with CCO's of large, complex managers earning upwards of $2 million. Base salaries are in the $175,000 to $250,000 range, with the balance of the compensation package payable as a year-end bonus.
These compensation packages are affected by three factors: (1) assets under management (AUM), (2) complexity of investing or trading strategies, and (3) fund performance. The first two are the key drivers. Compensation tends to increase commensurately with increased AUM and greater complexity in investing strategies.
Accordingly, a GC or CCO of a long-short equities hedge fund manager with less than $2 billion in AUM will tend to earn at the lower end of the range. The same role at a multi-strategy hedge fund manager with AUM north of $10 billion should earn closer to the high end of the range.
Based on the search assignments handled in 2014, I estimate that compensation for hedge fund in-house counsel increased in 2014 by 5-10 percent over 2013 levels. And given the overall growth in the industry’s AUM, and the corresponding increase in management fee income, year-end bonuses at most hedge fund managers should be growing.
Looking ahead to the rest of 2015, I anticipate hedge fund managers continuing to increase their pay to attract and retain top in-house legal and compliance talent. The pool of the highest caliber legal and attorneys is shrinking, and this will continue to put upward pressure on compensation.
Dimitri Mastrocola is a partner and leader of the financial services practice at Major, Lindsey & Africa. MLA is the world’s leading executive legal search firm, with a preeminent practice placing general counsels, chief compliance officers and other legal and compliance department talent within hedge funds, private equity firms and other alternative asset managers. You may reach Dimitri on LinkedIn or directly via email at firstname.lastname@example.org.