Your informant has correctly identified the fact that the investment management business is extremely rewarding for individuals who have the ability to generate good investment performance and who have placed themselves within an institutional achitecture which gives them a share of outperformance. Investment managers used to be paid (and treated) like civil servants – they are now paid like film or rock stars. The downside is that the demands are extremely high and the industry is very risky with a high attrition rate. Where are the heroes of yesteryear?
I earn a base package of A$350,000 a year as well as participating in our performance fee bonus system and collecting dividends from my 53% interest in Hunter Hall.
Hunter Hall earns performance fees of 15% of any outperformance of funds’ benchmarks (either the All Ordinaries Accumulation Index or the MSCI World Accumulation Net Return Index in A$) of which 50% is paid to the investment management team.
We allocate the performance fee to members of the team with 10% divided equally among the team for teamwork and 90% on the basis of individual stock selection. Basically we add up all the winning and losing stocks, attribute them to team members and adjust for any “load sharing” (for example, I gave $300,000 of my share of the December 2003 bonus to other team members for work they had done on my stocks).
Last December we distributed about A$5m to the team of 8 people with bonuses paid ranging from nil (for one member whose stocks lost money in aggregate) to the A$3m or so that I earned. Four team members earned hundreds of thousands of dollars and two earned less than $50,000.
This is a fair, rational, transparent but ruthless system which gives team members a big incentive to find winners and avoid losers and I believe develops a very performance-orientated culture. I believe that the team members understand that they will be able to generate substantial wealth for themselves if they concentrate on long term outperformance which is very much in alignment with the interests of our investors and shareholders.
As an investment management business Hunter Hall has no requirement for retained capital and we therefore distribute 100% of our franked income each year which effectively means a 100% payout of after tax profits. Frankly I don’t understand why most companies don’t follow the same policy as franked income in the hands of shareholders is worth a lot more to them than huge piles of franking credits mouldering away in the company’s balance sheet. If companies need more capital they can raise it by way of DRPs or rights issues.
Hope this helps. Congratulations on your continuing superb performance and best wishes.
CRIKEY: Check out our biggest pay packets list here: http://www.crikey.com.au/business/2004/09/27-0011.html
This is the piece that Peter was responding to:
Peter Hall’s big pay packet
A Crikey subscriber writes:
I attach a copy of the 2004 annual report of fund manager, Hunter Hall International, which was released today.
The report discloses (p.7) that Peter Hall, the company’s Managing Director, earned $3.578m last year, most of which came from performance bonuses. Additionally, his 53% stake in the company generated $4.73m dividend income.
Hunter Hall manages just over a billion dollars, which does not make it a particularly large funds manager. It makes one wonder about the profitability of larger funds managers, such as the privately held Platinum Asset Management, which manages over twelve billion dollars, and has a similar fee structure to Hunter Hall.