Fresh data suggests that hedge fund managers’ earnings have
been hit by unruly markets this year, with compensation falling on average by
10 per cent across varied roles in 2011, according to new research.

Compensation, however, varies widely between and inside
firms, driven by the roles, seniority, experience, fund size and investment
performances of funds, according to the 2012 edition of the Glocap Hedge Fund Compensation Report.

More positively, the total hedge fund industry surpassed
previous record levels of total capital under management in both the first and
second quarters of this year, reaching $2.04 trillion, before declining sharply
in the third quarter as performance deteriorated sharply, according to figures
from Chicago-based Hedge Fund Research.

Performance in the latest three-month period was the fourth worst
figure in the industry’s history, with the HFRI Fund Weighted Composite
declining by 6.2 per cent, HFR said.

 The growth in assets
under management led to an increase in overall management fee income that
partially offset the decrease in incentive fee income, however. Also, despite the
weak third-quarter performance, the percentage of funds reaching their
performance high watermarks in the trailing 12 months continued to rise,
exceeding 70 per cent as of the end of the third quarter, which further
stabilized the pool of income available for compensation.

The decline in compensation was not evenly distributed
across roles and fund types. Mid-to junior level investment professionals
experienced year over year compensation changes ranging from increases of +7
per cent to declines of -10 per cent, with fund performance the most
significant variable.

Senior investment professionals, who have greater ability to
influence fund performance and a greater component of incentive income,
experienced a wider range of compensation in 2011, from flat year over year to
declines of 30 per cent.

Professionals in operations, including marketing, client
service, accounting and compliance generally experienced flat to modest
increases in compensation, the report said.

Glocap is an investment management executive search firm
based in the US.
It has been tracking compensation systematically since its creation in 1997 and
has a database of more than 500,000 professionals in the industry.