* Portfolio managers, traders see most gains in pay in 2012
* Hiring environment remains "cautious"
* Funds wary of "aggressive expansion"
By Katya Wachtel
NEW YORK, Nov 8 (Reuters) - Hedge fund compensation has risen in 2012 even as the industry has failed to keep pace with a rising U.S stock market, according to data published on Thursday.
Those in marketing, compliance and senior investment roles at money-making funds have experienced the largest pay rise in 2012, according to the Glocap 2013 Hedge Fund Compensation Report.
The data, compiled by fund tracking firm Hedge Fund Research and recruitment company Glocap, said that as total industry assets grew bigger this year and returns climbed, so too did the pool of available capital to pay employees and their managers.
Even though hedge funds on average have improved performance since last year, when they lost about 5 percent, managers in the more than $2 trillion industry are still trailing the S&P500 stock index, which rose more than 14 percent through Oct. 31. Over the same period, hedge funds gained less than 5 percent.
Over the past 12 months, 43 percent of all hedge funds have reached their respective high watermarks, the report said, which enlarged the pool of incentive fee income available to compensate hedge fund workers. When a fund has hit its high-watermark, it can charge clients performance fees in addition to the less costly management fees.
Those lucractive performance and management fees mean that when a hedge fund has a good year, its top people can earn enormous paychecks. For example, John Paulson of Paulson & Co. reportedly earned $5 billion in 2010 as his fund made huge profits off bets on gold. In 2011 Bridgewater Associate's Raymond Dalio earned nearly $4 billion after his fund rose about 20 percent.
Portfolio managers and traders have been the main beneficiaires of better performance and asset growth this year, with portfolio managers seeing their paychecks rise as much 15 percent in some cases. Those portfolio managers at "mid-performing, mid-sized firms" earned an average $1.3 million in compensation, while "top performing and larger firm PM's more than doubled this figure," the compensation report said.
Some traders saw their compensation increase by up to 14 percent, while others actually saw a decline of about 1.5 percent. Senior traders at large firms with mid-range performance earned about $500,000 in total compensation, the HFR/Glocap report said.
"Intense competition limited compensation pools at entry and mid-level Analyst positions," which saw their pay change ranged from declines of 5 percent to inceases of 9 percent.
Even as pay has increased for many hedge fund employees this year, "an overall cautious hiring environment has persisted with funds remaining wary of aggressive expansion and rather focusing on selective, essential hiring and very limited speculative and opportunistic expansion," said CEO of Glocap Adam Zoia. Zoia said that pattern is expected to continue into next year.
Those hedge fund professionals in risk management, marketing, legal, accounting, information technology and chief financial and operating officer roles experienced single-digit percentage pay gains over the past year.