Compensation changes at hedge funds, the hefty withdraws in the mutual fund business and the lack of activity in investment banking could explain a big drop in bonus pay for 2016, which would have shown up as cash payments in January, according to Dick Bove, vice president equity research, Rafferty Capital.
"If you think of the amount of funds flowing out of mutual funds, it's been in the hundreds of billions. That's one main source of revenue for the industry," he said. "The commission income to hedge funds — the 2 and 20 deals are not in existence in the hedge fund to the degree they were previously." Two and 20 refers to a standard fee arrangement where hedge fund clients pay the fund 2 percent of their assets and 20 percent of any profits. "Those deals are going out the window," he added.
While Wall Street's banks and firms paid bonuses, Bove said they were still lower.
"You have huge pressures for commission income to Wall Street firms. One, the customers are really hurting and two, the market took off at the end of the year but the volumes were relatively low. If you take a look at investment banking, the big blockbuster deals that took place in 2105 were not there in 2016," he said.
He said 2017 looks to be better, but it's yet to be seen.