from an investment magazine.. "This is the golden age of hedge funds. Yes, annual hedge fund investment returns for the past few years are only half of what they were during the 1990s. And sure, the proliferation of new funds has made it difficult for managers to rack up big gains in most hedge fund strategies. But when it comes to pure wealth creation â arguably the biggest motivation for the majority of hedge fund managers â times have never been better. Thanks to the power of hedge fund math, driven by management fees and performance incentives, more managers are making more money today than ever before, as evidenced by our fifth annual survey of the biggest earners. One year ago Edward Lampert of ESL Investments made headlines when he became the first manager in our survey to earn $1 billion in a year. This time there are two who break the billion-dollar barrier: James Simons of Renaissance Technologies Corp. and BP Capital Managementâs T. Boone Pickens. In 2005 math whiz Simons, we calculate, earned a staggering $1.5 billion, edging out oil tycoon Pickens, who took home an equally astounding $1.4 billion from two hedge funds he quietly launched ten years ago. Although Lampert saw his earnings cut by more than half in 2005, he still made a cool $425 million, good enough for sixth place on our list. Rounding out the top five are three longtime managers: Soros Fund Managementâs George Soros, $840 million; SAC Capital Advisorsâ Steven Cohen, $550 million; and Tudor Investment Corp.âs Paul Tudor Jones II, $500 million. This year our list of the top 25 money earners actually includes 26 managers, thanks to a tie at No. 25 between William Browder of Hermitage Capital Management and Marc Lasry of Avenue Capital Group. Browder is one of eight managers who appear for the first time. (John Griffin of Blue Ridge Capital, No. 18 with $175 million, returns to the list after a two-year absence.) Other newcomers are Pickens, David Shaw of D.E. Shaw & Co. (No. 9 with $340 million); Timothy Barakett and David Slager of Atticus Capital (No. 14 and No. 20, respectively, with $200 million and $150 million); William von Mueffling of Cantillon Capital Management, who is tied with Barakett at No. 14 with $200 million; and Noam Gottesman and Pierre Lagrange of London-based GLG Partners, both tied with Slager at No. 20 with $150 million. One thing that never seems to change for this exclusive club: The cost of admission keeps going up. A manager had to earn at least $130 million in 2005 to qualify for a place among the top 25 money earners, compared with $100 million in last yearâs survey and just $30 million in 2001 and 2002. The 26 managers on the list made, on average, $363 million in 2005, a 45 percent jump from the $251 million the top 25 earned in 2004. The average, of course, got a boost from the billion-dollar boys, Simons and Pickens. But the median earnings also grew, jumping by a third, from $153 million in 2004 to $205 million last year. Two managers who made the list last year â Thomas Steyer of Farallon Capital Management and Leon Cooperman of Omega Advisors â are noticeably absent this time. Both Steyer and Cooperman fail to qualify despite earning at least $100 million, an amount that would have landed them among the top ten managers just three years earlier. This swelling of personal gains has made many hedge fund managers enormously wealthy. By our estimates, at least 13 of the managers on our list this year are billionaires â Simons; Pickens; Soros; Cohen; Jones; Lampert; Shaw; Bruce Kovner of Caxton Associates and David Tepper of Appaloosa Management (tied at No. 7); Israel Englander of Millennium Partners (No. 11); Kenneth Griffin of Citadel Investment Group (No. 13); James Pallotta of Tudor Investment Corp. (tied for No. 14), and Louis Bacon of Moore Capital Management (No. 19). Investors have long insisted that hedge fund managers have a substantial percentage of their net worth tied up in their own funds to ensure that the interests of all parties are aligned. Now, as hedge fund assets have grown, and managersâ assets in their own funds have grown with them, managers no longer need to put up high returns to make a lot of money. Six managers this year make the top 25 despite generating single-digit returns: Caxtonâs Kovner, Citadelâs Griffin, ESLâs Lampert, Tudorâs Pallotta, Raymond Dalio of Bridgewater Associates and Och-Ziff Capital Management Groupâs Daniel Och. âClearly, there is a disconnect between pay and performance,â says Antoine Bernheim, publisher of hedgefundnews.com and president of Dome Capital Management in New York, which has been advising European institutional and private investors on their hedge fund portfolios since 1984. âPeople are getting paid extraordinary amounts of money for performance that is mundane.â As hedge funds have grown, management fees â which mostly range between 1 percent and 5 percent, depending on the manager â have become an increasingly important piece of the economic equation. Ten years ago a $10 billion hedge fund was rare; today there are 20 managers who run at least that much in assets. âYou can make T-bill returns and be just fine because you have a 2 percent management fee,â says Mark Yusko, president and chief investment officer of North Carolinaâbased investment advisory firm Morgan Creek Capital Management. Of course, some managers, such as Jeffrey Gendell of Tontine Associates, have become very wealthy because of good old-fashioned performance. Gendell made $215 million in 2005 thanks to a 38 percent net return, which followed 100 percent-plus returns in 2003 and 2004. The billions and billions of dollars being accumulated by hedge fund managers is a concern for investors. âThe wealth creates the potential for major distractions for all managers who are successful,â says Peter Adamson, chief investment officer for the Los Angelesâbased Broad foundations and Eli Broad family office, which have invested more than $1 billion in hedge funds. âWealth has the potential to have a dulling influence on a managerâs drive,â adds Morgan Creekâs Yusko. Still, investors like Yusko acknowledge that money is the ultimate yardstick that the top hedge fund managers use to measure their success. âIn every profession, whether it is a football coach or a surgeon, the best person makes the most money,â he explains. âThe same is true with investment managers. The great ones are hedge fund managers.â 1 - James Simons Renaissance Technologies Corp. $1.5 billion JAMES Simonsâ legend grows apace with his portfolio and his philanthropy. Last year the veteran Long Island hedge fund managerâs quant-driven Medallion hedge fund returned 29.5 percent net. That was all the more remarkable given the $5.3 billion fundâs 5 percent management fee and 44 percent performance fee. (The gross return was nearly 60 percent.) Even so, Medallion fell short of its roughly 34 percent annualized net return since its 1988 inception. The odds are pretty good that Simons will figure out how to make up that shortfall. Many hedge funds are run by teams of pointy-headed rocket scientists, but Renaissance Technologies Corp. might be able to run its own space program. The 68-year-old Simons, who has a Ph.D. in mathematics from the University of California at Berkeley and has taught at Massachusetts Institute of Technology and Harvard University, has packed his East Setauket, New York, enterprise with math and computer whizzes. These quantitative specialists use arcane programs to trade the globeâs most liquid securities rapidly and frequently, using lots of leverage. Nonetheless, no program can entirely capture the marketsâ vicissitudes. The firmâs new $3.4 billion Renaissance Institutional Equity Fund, which Simons says in an investor document has the capacity to handle as much as $100 billion in assets, got off to a slow start last year, rising just 5 percent from its August 1 inception through year-end. RIEFâs $20 million minimum investment gears it to institutions; unlike the shorter-horizon Medallion, the new fund takes mostly long positions and holds them for relatively protracted periods. RIEFâs gain in assets came as Simons moved Medallion ever closer to being a closed portfolio for himself, his friends and his employees.