While many industries are struggling with the current economic conditions, the financial services sector is humming, with the latest evidence being a significant compensation spike for Wall Street professionals.
Reacting to strong revenue growth, stock market appreciation and overall improved business performance, year-end incentive payments are expected to surge well beyond last year’s levels throughout most of the financial services industry.
That’s according to compensation consulting Johnson Associates, which released an analysis of pay at 13 of the largest U.S. investment and commercial banks and 17 of the largest traditional and alternative asset management firms.
Investment banking debt underwriters are projected to receive the largest increases, up 25% to 35% from year-end 2023 incentives. Next are investment banking equity underwriters and equity sales and trading professionals.
Retail and commercial banking professionals are the only group not expected to see declining incentive compensation, with a projected average of minus 5% to flat. Real estate was also late to the pay party, with flat expected bonus pay.
“Virtually every sector of the industry is performing strongly this year, with the exception of retail and commercial banking,” said Alan Johnson, managing director of Johnson Associates. “Firms are in a strong financial position to do what they haven’t been able to do since 2021: reward their professionals with larger bonuses.”
Johnson noted that banks are looking to extend and improve upon their healthy pipeline, specifically for M&A. Assuming markets remain elevated, asset management will benefit as product evolution continues, he added.
In particular, “the ongoing significant growth in alternative investments has a direct and indirect impact on compensation levels and opportunities,” Johnson said.
In 2023 alternative investments accounted for a record level of 54% of total asset management revenue. Johnson Associates projects that level will continue to inch up, reaching 57% by 2028. Many firms that did not traditionally offer alternative investments are now building out strategies to do so, according to the analysis.
Private credit is the hottest sector among alternatives, with most public alternative firms showing significant increases since 2020 in private credit as a percentage of their assets under management.
Some major banks have formed partnerships with alternatives to scale direct lending capabilities, the analysis noted.
Alternatives firms’ aggregate stock performance through November was expected to be up a whopping 60% from last year. Major banks were expected to show 42% stock growth. The S&P 500 stocks, by comparison, were expected to rise 28% through November, just ahead of asset management firms, regional banks, and insurers
