If you’re an equity researcher in an investment bank, you might be doing it wrong. You could be earning far more on the buy-side.
The 2022 equities compensation report from recruitment consultancy Dartmouth Partners suggests the pay differential between banks and hedge funds for research staff is stark.
An equity research analyst in a hedge fund with less than five years of experience earns an average of £218k ($264k). In a bank, an associate with a similar amount of experience can expect around £133k.
Bonuses account for most of the difference. While salaries are similar, bonuses are 113% of base at the hedge fund and 38% of base at the investment bank.
The bonus differential increases with seniority. Six years in, bonuses for researchers at hedge funds increase to 215% of base, whereas at banks they top out at around 48%. The upshot is that at a researcher at a hedge fund with over six years’ experience earns three times as much as a VP at an investment bank (£481k to £154k).
Needless to say, plenty of researchers in investment banks want to move to hedge funds. However, they have competition – Bikram Rana, Dartmouth principle and one of the authors of the report, says hedge funds are often keen to hire junior M&A bankers (confusingly, also known as analysts) into their research analyst roles.
As a result, analyst roles in hedge funds are highly competitive, and equity researchers from the sell-side can struggle to access them.
It doesn’t help that the two roles can be very different. While Rana says the jobs are not dissimilar, banking researchers traditionally write reports on sectors, whereas researchers in hedge funds are all about pitching actionable investment ideas.
Dominique Mielle, former partner at hedge fund Canyon Capital worked as analyst earlier in her career. In her book published last year, Mielle said analysis jobs in hedge funds can be highly competitive, with analysts jostling for attention between themselves. “There is a defined amount of capital to be invested,” says Mielle. “If one analyst is gutsy and convincing enough to push for a $100 million investment, there’s that much less money for everyone else to use.”