2009 Compensation for Top 5 Hedge Fund Managers:
- David Tepper: $ 4.0 billion
- George Soros: $ 3.3 billion
- James Simons: $ 2.5 billion
- John Paulson: $ 2.3 billion
- Steve Cohen: $ 1.4 billion
To make the point clearer, here's a simplified example (using the 2% and 20% fee structure):
In year 1, if a hedge fund with $ 10 billion in assets delivers a 50% return. The hedge fund makes $ 1.2 billion and investors make $ 3.8 billion.
Ok, that may or may not seem fair but...
In year 2, the same fund drops 33%. The hedge fund makes over $ 200 million (the 2% fee on the average amount of assets as they decline during the year...~$ 11.5 billion for the year) and the investors have $ -4.8 billion ($ -4.6 billion from the decline in assets and $ -200 million in fees) of losses.
Summary of the 2-Year Returns
- Investors: A -10% return and $ -1.0 billion loss. The $ 10 billion of assets at the beginning of year 1 are now worth ~$ 9.0 billion ($ +3.8 billion year 1 and $ -4.8 billion year 2).
- Hedge Fund Manager: $ 1.4 billion in compensation. This comes straight from the $ 1.2 billion in first year plus the $ 200 million in the 2nd year (an infinite return since no capital of their own is required...though, to be fair, some certainly have plenty of their own money invested).