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Thursday, November 16, 2023

Fundster Bonuses May Fall By 10 Percent

Reported by Neil Anderson, Managing Editor

Despite rising markets in 2023, most fundsters may see their bonuses changing in the opposite direction, according to the folks at a New York City-based, financial services-focused compensation consulting firm.

The team at Johnson Associates predicts, in the "Financial Services Compensation Third Quarter Trends and Year-End Projections" report they released on Tuesday, that "incentive funding" (aka bonuses) at traditional asset managers will be down by between five and ten percent (on a headcount-adjusted basis) in 2023 when compared with 2022. That's down from back in August, when the Johnson team predicted (based on Q2 2023 data) that fundsters' bonuses in 2023 would be between five percent higher and five percent lower, though the new prediction is in line with the Johnson team's predictions from May 2023.

The Johnson team puts their sour projection for fundster bonus levels in the context of AUM becoming a "less relevant indicator of profitability" for fund firms, thanks to the "multi-year trend of fee compression and shift to lower fee products." They predict that incentives this year will be down nearly 10 percent from their 2019 levels (and even further down from their 2019 peak).

"Active product fee pressures combined with shift to lower fee products and ETFs drag revenues lower," the Johnson team writes.

The consultants also continue to expect "bolt-on products" (like alts and technology platforms) to help fundsters' diversify their revenue streams and generate more fees. Watch for headcount to fall thanks to a combo of "tepid hiring" and layoffs amid a revenue drop and continued margin erosion thanks to fee compression. 

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