Hedge fund managers have less money than you thought: “I’ve had to keep living on my savings”

Our latest compensation survey confirms that you can still earn good money working in financial services. But if you think that a career in as an investment banker is going to bring you £330k ($444k) a year to live on, and a career in hedge funds twice that, think again.  There are income taxes. There are also fallow periods. 

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Financial services jobs can be unstable. Job security is eroded by the triad of market cycles, internal politics and automation. However good you are at your job, you are in danger of being hit by one or all of these things. The combination can be financially corrosive.

“I don’t really have any savings,” one senior hedge fund analyst tells us. “In the last decade I’ve had four years out of the market. Some years I was working I did really well but in other years things happened like my boss blew up. I’ve had to support my family on what I’d saved. Now I don’t have much left.”

Others in the market agree. “It’s not like a public sector job, where you do 35 years and then retire,” says one senior trader who’s bounced between banks and hedge funds. “These are high risk and volatile jobs and you can never get too comfortable and presume that you will be somewhere for long.”

With most banks signalling an aversion to adding unnecessary staff and hedge funds licking their March wounds, the danger is that anyone ejected from the market now will be out for longer still. In the UK, this comes as London house prices are falling and as the City’s position as a financial centre remains dented by Brexit. Meanwhile, the cost of living is heading in the opposite direction. 

It’s not desperate. People with histories of earning over $400k are not on the breadline. But nor are they as wealthy as might be assumed. The older you get, the greater risk of being locked out of the market permanently.  “You can earn more in financial services than a doctor of lawyer, but it’s compressed into fewer working years,” says the senior trader. “When you’re in your 30s, you’re earning $1m and your lawyer mates are on $200k. But when you’re in your 50s you’re probably out of a job and your lawyer friends are still working.” 

While you’re earning good money in finance, it’s therefore advisable to save as much as possible. “There are a lot of victims who don’t have a sensible lifestyle,” says the trader. “They earn $1m, they spend the $550k they have left after high taxes and then they don’t have anything and realise there are fewer and fewer jobs and the competition for them is more intense than ever.” 

Matters are made worse by notoriously aggressive hedge fund non-competes. It’s not unusual for people to be asked to sit out of the market for two years when they change jobs. They are paid during this period, but only salary and not bonus. Hedge fund professionals with school fees and high mortgages say this depletes their savings further.

The hedge fund analyst says his experience has taught him the value of money. “It takes a long time to understand the meaning of the word ‘need,'” he reflects. He says that it helps that his wife is frugal and that he didn’t grow up financial privileged. “Honestly? I just want enough money to be free.” 

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