NEW YORK (By Matthew Goldstein) - The richest 25 hedge fund managers made a bit less money last year. But don't cry too hard. Collectively, this privileged class of traders did quite well for itself -- raking in some $22 billion in compensation, according to AR Magazine. Topping the charts in hedge fund pay was John Paulson, who reportedly earned $4.9 billion. Paulson's name at the top of the "rich list" isn't too surprising, given that his $36 billion Paulson & Co has emerged as one of the industry's top performing funds. AR reports that Paulson's 2010 earnings even bested the $3.7 billion he made in 2007, when he rocketed to hedge fund fame with his enormously successful wager on the housing market's collapse. Other top earning managers were: Bridgewater Associates' Ray Dalio with $3.1 billion, Renaissance Technologies' Jim Simons with $2.5 billion, Appaloosa Management's David Tepper with $2.2 billion and SAC Capital Advisors' Steve Cohen with $1.3 billion. Overall, the hedge fund trade publication reports that compensation for the top 25 managers declined by 13 percent from 2009. But 2010 still came in as the third best year for hedge fund pay since AR began estimating industry compensation in 2001. AR notes that many of the managers on its rich list are "serial earners." It found that 11 managers, including Simons, Tepper, Cohen and Citadel's Ken Griffin, have made the rich list at least seven times. Other rich managers include ESL Investments' Eddie Lampert, Pershing Square's William Ackman, Moore Capital Management's Louis Bacon and Third Point Advisors' Dan Loeb. Hedge fund managers typically charge investors 2 percent for managing their money, meaning that a $10 billion hedge fund takes in $200 million in fees. In good years, managers also can skim off 20 percent or more of the profits from their trades. Last year hedge funds, on average, returned about 7 percent after managers collected their fees. Many of the managers on the rich list scored big by keeping a good chunk of their personal wealth invested in their funds. In other words, the managers benefited directly from the rising value of their funds. David Shaw, founder of D.E. Shaw Group, earned $275 million, even though the firm that bears his name had a difficult year. The firm's assets shrank by 40 percent to $14 billion over the past year, as investors pulled money from the fund. Many Shaw investors redeemed their money after being barred from doing so during the height of the financial crisis. Calculating the earnings of top hedge fund managers involves a degree of guesswork and alchemy, since funds don't publicly disclose compensation. AR bases its estimates on the fees charged by funds and the percentage of capital a manager is believed to have in his fund. Over the years, getting on AR's rich list has become a point of pride and vanity for top managers -- as the list is a proxy for measuring a managers success. Conversely, falling off the rich list is something of a sore point for managers as well. This year, six managers who made the rich list in 2009 dropped off the chart, including Harbinger Capital Partners Phil Falcone and Viking Capital's Andreas Halvorsen. (Editing by Steve Orlofsky) Copyright 2011 Thomson Reuters.
And what to hedge fund managers produce? These guys are paid to manage the value of paper. Wall street loves inflation or QE2. Inflation or increase money supply increase their paper value and paper profits. But these fund managers take the cash for payment. That cash come from the FED's printing preses. If you were to put a unique serial code for each dollar circulating, you'll be surprise where that money came from. nowadays, most of money is in electronic firm and cannot be traced for authenticity. the theory is that Qauntitative easing is same as counterfeiting of money. Capital in theory is limited. Capital is limited Just like limit in physical gold. Limit to quanitities of water and land and limited workers. these guys main job is 'sales' and customer service. don't withdraw your funds in our investment bank. your funds are is safe hands. are you nuts you are making 25% profit with your funds with us. the only thing these guys are managing are paper.
Well, it seems Paulson did succeed in ripping 10+ billion from the big banks that were the counterparties to his mortgage bets (which where then made whole by the tax payer). Gee, thanks. You get paid more to help destroy America than to build it up. Just ask Soros.
With all due respect, hedge fund managers may not produce any sort of innovative products, but they do provide a service that many people will gladly pay for. They help manage money for wealthy people. When they make money for said wealthy people, they are handsomely rewarded. I guess I don't see why that's a crime. It's no different than paying a financial planner to advise you on managing your money, or a someone to manage a business, or an accountant to reduce your tax liability, or someone to watch your kids for that matter. Although there is no brick and mortar product being produced, they are still providing a valuable service.....asset allocation.
With all do respect, the industry as a whole performs terribly for investors. They hold up the stars while quietly shuffling the losers out of the indexes, the blow ups that stop reporting, the absolutely enormous sales charges that almost guarantee that the investor will in one way or another end up hosed. I might have confidence in certain specific managers, however the industry as a whole is somewhat of joke. By and large it exists not to serve investors, but rather to fleece them
I sense thinly veiled jealousy in this thread. The top funds have long waitlists of investors. For instance, Renissance's Medallian fund charges a whopping 5/50 fee, but has managed consistent 30+% annual returns net of fees year after year. It is no surprise this fund is closed to new investors. If I can make a consistent 30% year after year, with very low standard deviation and draw downs, why would I turn that down despite the egregious fees? It is clear that the fund's value added excess that of the fees in this case. Similarly, some exceptional managers have proven their ability to outperform the market significant year after year. No one is putting a gun to the heads of investors and forcing them to pay the 2/20 fee. They are investing with the likes of Paulson and Tepper because it is in their interest to do so.
While I won't defend the performance of the HF industry as a whole. You need to realize that both the S&P and Nasdaq's performance is only comparable to an investor who is 100% long the market. Hedge funds, are on average, are less than 100% long the market (hense the word 'hedge') Too really access whether the industry added value last year, you need to look at their risk adjusted returns relative to the market. My guess is that such a metric is not available.
The investment funds like renaissance making more than 25% or more consistently are 'active' traders and move markets. They are a small player only 5 billion in the market. Citadel etc these guys represent like 15% of nasdaq volume so theoretically less than 10 hedge fund control the market. and these guys are the 'market makers' of many stocks and sectors. these hedge fund have a high churn rate. only 275 employees. This hedge fund industry is CLOSED industry and money is circulalated via feeder funds an cloak and dagger type of money transfers. There is no transparency or competition whatsoever everything is done under the table. you got that 'greed' is the only reason people are here in wall street. making money is the only thing these investors gives a fuck about. wall street is a closed shop. and the reason the fund is closed becaus due to law of large numbers it's impossible to acheive 50% ROC year over year with a 100 billion dollar fund. the market isn't big enough. 2008 2009 2010 was 'abnormal' years you may not see years like that for decades to come traders say volume is light well volume is 'normal' volume this is the new normal. http://en.wikipedia.org/wiki/Medallion_Fund
http://www.opalesque.com/files/BloombergRichestHedgeFunds.pdf Over two years most seem to be negative. These guys are ahead by luck. 27% per year over 2 years. Presume before fees. Add all funds up weight by assets remove fees and get negative return overall. And these guys probably work 10+ years in industry. It'a same nature of job as real estate agent.