Hedge fund compensation increased again in 2010, although by less than it did in 2009, and industry payouts are still below the peaks reached in 2007, according to analysis by Glocap Search LLC and Hedge Fund Research.

While 2010 base salaries for investment professionals and traders were essentially flat from 2009 levels, regardless of fund size or performance, year-end bonuses are expected to climb 5% on average. By comparison, 2009 bonuses rose about 15%, on average, above the depressed levels of 2008.

Glocap CEO Adam Zoia said in a press release that although most funds are not expanding as aggressively as they did in 2007 and the first half of 2008, they are also clearly out of crisis mode.

 “2010 represented a return to normalcy for the hedge fund industry,” he said.

Zoia also said hiring by hedge funds has increased and performance has been stable. He noted that fund marketers and compliance professionals remain in particularly high demand and their compensation experienced the largest percentage increase in 2010.

While hedge fund returns have been modest this year, with the HFRI Weighted Composite Index returning around 3.5% through September, assets at many funds have now recovered the money they lost during the financial crisis, allowing the to start charging performance-related fees again.

“Hedge fund compensation in 2010 is not exclusively about management and incentive fees, but also about duration, liquidity, transparency, and retention, as well as operational and organizational efficiencies," said HFR President Ken Heinz. "As the hedge industry continues to grow and evolve, the compensation model which defines the fundamental economic relationship between investors and fund managers will continue to evolve with it.”

Compensation levels vary widely both by type of position and the size and performance of a fund. A senior trader at a small or mid-size fund with a "middle" performance earned an average  $365,000 this year, while the average portfolio manager at a top performing small fund took home $1.23 million and the average portfolio manager at a top performing larger fund took home $4.85 million.

The report analyzes base salaries and bonuses of thousands of hedge fund professionals at hundreds of U.S. hedge funds, including investment professionals, traders, chief financial officer, chief operating officers and fund marketers, administrative and executive assistants, information technology, risk management, operations and legal and compliance professionals.

The data is obtained from a combination of first-hand feedback from Glocap candidates on past and expected compensation, actual placement data maintained by Glocap in the course of its search business and from survey results by its recruiters.