Hedge Funds Widen Pay Chasm Over Banks

Recruiter says gap in trader pay has never been wider; investment banks deny that means the best traders are jumping ship.

The top 5 percent of hedge funds have increased the gap between the amount they pay traders and what Wall Street banks offer, recruiter Ilana Weinstein said.

“The chasm there is great, and maybe it’s time to stop comparing the sell side to the buy side,” Weinstein, founder of IDW Group LLC, said in a Bloomberg Television interview with Erik Schatzker and Stephanie Ruhle. “It’s never been bigger, that divide.”

The biggest investment banks, including New York-based Goldman Sachs Group Inc. and Morgan Stanley, are setting aside a lower portion of revenue for employee pay amid regulatory pressure and shareholder demands for higher returns. Hedge funds run by Paulson & Co. and Elliott Management Corp. posted yearly gains, and Barclays Plc said this month the industry may see the largest net inflows since 2007.

Greg Fleming, president of Morgan Stanley’s wealth-management division, said on Bloomberg Television that the top hedge funds represent fewer than 10,000 people and are not a good comparison with the bigger firms.

“Morgan Stanley has a lot of people. We’ve got 55,000 employees, and we’ve got a lot of people working with clients, doing a good job for those clients, and they’re well-compensated for those roles,” Fleming said. “It’s apples and oranges.”

While the hedge funds are much smaller, the gap in pay has grown so “enormous” that traders who are able to go to the top funds are likely to leave banks to do so, Weinstein said. Fleming said many things besides pay factor into traders’ decisions on employers.

“The Street and Morgan Stanley still employ some traders that are very good in specific areas,” Fleming said.

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