The high salaries of mutual fund managers are more often subject to speculation than reporting. The lack of transparency in these matters was part of the motivation behind protests against the financial sector and Wall Street in the United States in 2011. “Things have gotten out of hand at the top end of the pay scale,” founder and Chief Investment Officer of Bridgeway Capital Management John Montgomery told Bloomberg in 2017. Montgomery is one of the few mutual fund managers ever to disclose his salary – it was $626,639 in 2011. He hasn’t released it publicly of late, though he is on record as saying he takes home only seven times the income of the firm’s lowest-paid employee.
Skimming, a mutual fund’s prospectus further supports the perceived lack of transparency. In these lengthy documents, there is no simple language used to directly state the amounts paid to fund managers for their advisory services. The statement of additional information offers investors and the public the most details, though it still isn’t much. It is not made public to protect fund managers, but this does not account for the sparse language used in the overall reporting of salaries.
How Mutual Fund Manager Pay Breaks Down
The structure of a mutual fund manager’s income is typically a salary plus a performance bonus. A February 2018 study of 4,500 mutual funds published in the Journal of Finance showed that 75% of mutual fund advisers explicitly receive compensation from fund performance, and this compensation structure is more prevalent with larger funds. The top fund managers in the industry have been known to bring in $10 million to $25 million per year in exchange for employing envious stock-picking skills. Fund managers receive additional income based on the total assets under management.
As of October 2018, Salary.com reported portfolio manager’s annual base salary as ranging from $65,589 (for someone with under two years’ experience) to $135,153 (for one at the senior level). More likely than not, though, a majority of a fund manager’s income is derived from bonuses rather than his base salary.
The average annual income of fund managers also varies by the type of financial institution. A survey conducted by Russell Reynolds Associates revealed that fund managers at banks make an average of $140,000, while mutual fund managers at insurance companies make $175,000. Fund managers at brokerage firms make $222,000, and mutual fund companies’ mutual fund managers make an average of $436,500.
Will Danoff manages Fidelity Contrafund (FCNTX), the largest actively managed equity mutual fund in the United States with a portfolio worth of $135 billion as of September 2018. The Fidelity Contrafund’s performance is unique from that of other funds in that it has outperformed the Standard &Poor’s 500 index on several occasions. Being the manager of a staple fund requires abnormally stringent due diligence efforts from Danoff, who communicates with over 1,000 companies a year to make the portfolio selections that support the fund’s success. A large part of his time is spent researching current fund holdings. He has been the fund’s manager since September 1990.
The current prospectus lists the management fee as 0.60%. That means that when an investor purchases $10,000 shares in the fund, $60 goes toward Danoff’s and the other investment advisers’ compensation. The statement of additional information in the fund’s prospectus lists Danoff’s compensation as including an annual base salary, a bonus, and equity-based compensation. Specifics on compensation structure can vary widely from fund to fund to limit the transparency of income data further. Mutual fund managers often make 1% of total assets under management. That means Danoff’s annual compensation is well over the average of $436,500, and it is well over $10 million, but Fidelity does not benefit from investors, the U.S. government or other Fidelity fund managers knowing the specific number.
An Expanding Profession?
While mutual fund managers earn less annually than hedge fund managers (the top hedge fund managers reported making billions per year from sizable management and performance bonuses), mutual fund management is typically a more stable career. The likelihood of being fired due to structural changes in the company or poor fund performance is lower overall in the mutual fund management role. This, however, does not mean being a manager of a large mutual fund in the United States is an easy job; the job involves high pressure and is highly demanding, and fund managers are shifted out quickly from the industry from poor past performance of managed funds.
Investments in American mutual funds have regained exponentially since the financial crisis of 2008, perhaps more than would otherwise be thought based on the disastrous investment implications that mutual funds had on the American economy and individual retirement portfolios. Institution and consumer retail investment into financial instruments make the future potential for new mutual funds to be operated by banks, insurance companies, mutual fund companies, and brokerage companies more viable. All of these firms are looking to hire competent individuals to select equities that can outperform indexes successfully – an increasing challenge, given the competition human managers face from robo-advisors and passively managed funds that mirror those indexes, for much lower fees.
While mutual fund companies may be the most selective when choosing candidates for future portfolio managers, insurance companies, banks and brokerage firms offer more leeway in terms of prior employment history and choice of an educational institution. The financial services industry employs a relatively short-term model in picking out talent for these positions, with new managers given one to three years to develop performance in funds before being offered a chance at management. The likes of Will Danoff and other long-time fund managers have kept their positions by repeatedly performing well.