Wall Street compensation consulting firm Johnson Associates is flashing a caution signal to fund managers, bankers and brokers not to expect anything like last year’s bonus when the time arrives for those annual cheques.
Payouts for private-equity fund managers could drop as much as 15% this year compared with 2021, while public equities investment managers could endure cuts of as much as 25%, the firm said Tuesday. Investment bankers at the largest institutions stand to absorb the sharpest cuts of as much as 40%.
The expected declines stem partly from inflated incentive payments coming out of last year’s record level of activity for private equity, investment bankers and others on Wall Street, Johnson said in its compensation forecast.
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Private-equity managers last year stood to see bonus increases of as much as 20%, and investment bankers were expected to enjoy 30% to 35% increases in their annual incentive payments, according to Johnson’s forecast in November 2021.
Johnson cited a number of factors as contributors to the projected 5% to 15% declines in bonus payments for private-equity fund managers this year, from slower fundraising to a drop in deal-making and valuation declines. The firm said wealth advisers who would see 15% to 25% bonus cuts could blame it on plunging equities and bond prices as well as asset outflows as investors sought safety in money funds and even cash.
Investment bankers are expected to suffer mainly because of severe reductions in underwriting revenue, though with smaller declines in credit underwriting. Johnson also cited a fall off in mergers and acquisitions this year.
Hedge-fund managers might escape with cuts averaging 10%, Johnson said. But the firm cautioned that there would be wide variations depending on fund size, strategy and performance.
Another underlying factor is the easing of a talent squeeze that pumped up salaries last year, Johnson indicated, saying that the “white hot” labour market on Wall Street is rapidly slowing. In addition, Johnson said the competition for talent from technology industries is evaporating.
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This article was published by The Wall Street Journal, part of Dow Jones