Fund bosses' average pay is $328,600 Those who run stocks tend to do better than the bond crowd

Managing very well, indeed

But a bear market might take something out of the old paycheck

September 01, 1997|By BLOOMBERG NEWS

BOSTON -- They may not be in the same league as an all-star pitcher, a Hollywood sitcom star or even a Wall Street investment banker. Still, few other professions pay better these days than managing a mutual fund.

Mutual fund managers were paid an estimated $328,600 on average last year, according to Buck Consultants Inc.

"The mutual fund industry is one of the highest paying in the world," said Robert Patrick, president of Diversified Management Resources Inc., a Boston-based executive search firm.

The average fund manager with five years' experience took home anywhere from $185,000 to almost $2 million in cash compensation last year, excluding stock options, according to a survey of about 200 portfolio managers at 52 companies.

Stock fund managers generally earned more money than did their bond fund counterparts, and the average salary increase was 15 percent, or almost five times last year's U.S. inflation rate, said Paul Gavejian, compensation consultant at Buck Consultants in Stamford, Conn., who put the firm's survey together.

The average pay increase was below the 19.5 percent that the average stock fund gained in 1996 and below the industry's asset growth rate, which was 25 percent.

Hedge fund managers can make even bigger salaries if the funds they run do well, because they get 20 percent of a fund's net profits. If a manager oversees a $5 million fund and the fund goes up 100 percent, the manager stands to make $1 million.

Moreover, the average investment banker with five years of experience since graduating from business school earned closer to $400,000, according to Russell Reynolds Associates, an executive search firm in New York.

"Money manager salaries will come down if there's a bear market, but who knows when that might happen?" Gavejian said.

Fund managers say the high salaries they earn are justified. It's a highly competitive business where performance is measured carefully and managers are rarely given more than three years to prove their mettle.

"Fund managers earn every cent," said Patrick Adams, manager of the $2 billion Berger 100 Fund. "It's a high-pressure job, and the people that do well at it should be compensated."

And some fund companies are under pressure internally to increase compensation for top-ranked managers, or risk losing them.

This year, Fidelity Investments is issuing to some fund managers a new class of preferred stock that's designed to boost compensation and stem turnover. Boston-based Fidelity is taking the step after losing about 20 fund managers since early last year, some of whom left for the opportunity to make more money.

Just last week, Fred Kobrick, a veteran fund manager at Boston's State Street Research & Management Co., said he was resigning after 13 years at the firm to start his own money management firm.

Kobrick and a long list of other fund managers that includes John Gillespie, who previously worked at T. Rowe Price Associates Inc., are hoping to seize the opportunity posed by the millions of dollars that keep pouring into investment funds.

It's a risk, especially with U.S. stocks showing signs that the 15-year bull market rally may be running out of steam. Still, managers such as Kobrick are undeterred, even if it means risking the loss of a steady paycheck.

In a nutshell, it's the managers' ability to attract assets as much as how they perform that determines how much money they make, Buck's Gavejian said.

The Buck Consultants survey is somewhat skewed because it includes just a quarter of the nation's biggest fund groups, and securities firms, banks and insurance companies that offer mutual funds. The survey also doesn't include many of the smaller fund groups that offer funds.

"Small companies pay big compensation, too, so the sample in the survey is an accurate reflection of the marketplace," Gavejian said.

Buck Consultants has done the annual survey the past 10 years. It's underwritten by fund companies and financial services companies. Buck Consultants sends out questionnaires in April to about 200 companies to determine the compensation levels of about 100 mutual fund jobs, including fund managers.

Surveys like this should be taken with a grain of salt, said Lawrence M. Lieberman, president of Robert H. Wadsworth & Associates Inc., an executive search firm in New York.

"You can't make generalizations about what fund managers earn," Lieberman said. "It varies widely depending on whether the manager works at a bank, insurance company, brokerage firm or independent fund group."

It's a lot like movie stars, who live and die by their last film.

Pub Date: 9/01/97

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