From Wall Street to Main Street, CEO compensation is big business these days. How much does your hedge fund manager make? The chances are it’s a lot.
Hedge Funds are hot. With inflows from pension funds and university endowments, they are becoming more mainstream, making hedge fund managers better paid in 2005 than ever before. The top 26 earners brought home more than $130 million, and two earned over $1 billion.
Glamorous Chicago-based hedge fund manager Ken Griffin hosted hundreds of guests at his posh wedding at Versailles, while rich hedge fund manager Eddie Lampert was kidnapped and held for ransom. Institutional Investors' Alpha Magazine's revealed juicy numbers in its Fifth Annual List of Top Hedge Fund Earners.
The winner: Renaissance Technologies’ James Simons, who brought home $1.5 billion last year. He earned his $5.3 billion flagship Medallion Fund an almost 30 percent return. Septuagenarian T. Boone Pickens is number two, with energy plays earning him $1.4 billion. His BP Capital Commodity Fund returned a whopping 640 percent, and his BP Capital Energy Equity Fund earned 89 percent.
“When I first started in this business twenty years ago there were two dozen hedge funds and 95 percent of them were talented," said Antoine Bernheim, President of Dome Capital Management Inc. "About 5 percent were mediocre. Today there are thousands of hedge fund managers. And I think the proportions have reversed.”
There’s also George Soros, earning $840 million. Steven A. Cohen of S.A.C. Advisors, earning $550 million, and Tudor Investment Corp.’s Paul Tudor Jones, bringing home $500 million. Sixth is Eddie Lampert, whose fund bought K-Mark and engineered the purchase of Sears, making only $425 million, down from $1 billion in 2004.
How do these guys make bank? Managers generally charge investors 2 percent of the assets under management and 20 percent of performance gains. Top managers pull off even higher fees. Simons charges 5 percent of assets and 44 percent of profits. Tudor Investment, which has never had a down year since it’s founding in 1980, charges 4 percent of assets and a 23 percent fee.
“In the case of the top 25 you are getting exceptional talent. You may be paying a high price for it but you are getting exceptional quality management,” said Bernheim.
But some funds have gotten so big that managers can cash in on their cut of assets under management alone. Meaning if your fund is big enough, you can have a huge payday - even if your performance is less than stellar.
Six managers on the list generate only single-digit returns. Number seven is Bruce Kovner, posting single digit returns three years in a row for New York-based Caxton. Yet, he’s still taking home $400 million.
These $1 billion pay packages are believed to be the highest in history.
Which is why an increasing number of business school grads are going into hedge funds instead of investment banking