Hedge Fund Employee Compensation

Hedge fund managers generate revenue from fees their investors pay for asset management, based on a percentage of assets under management, and incentive compensation based on investment performance. The employees who help to generate these revenue streams, that is, the portfolio managers, analysts, traders, marketers and investor relations personnel, and the operations personnel who support the revenue generators, are the firm’s most valuable assets. In this Practice Note for Practical Law, partner Holly Weiss addresses hedge fund employee compensation by discussing sources of income managers receive from investors and approaches hedge fund managers take when compensating their employees. Partner David Efron and special counsel David Griffel contributed to this Practice Note.