Staggering Pay for Top Hedge Fund Managers

Hedge funds are where money is. According to an article in yesterday's USA Today, $363M is the average pay for the 26 top hedge fund managers last year, up from $251M in 2004. It's staggering! Outragerous!

The key reason seems to be the huge amount of asset the managers manage. They typically charge 2~5% management fee and take 20% (up to 40%) cut from profits. "A $10 billion fund would earn $200 million from the 2% management fee alone". If the very manager happened to bet on oil last year, it's no surprise that he/she could have gotten a pay check of more than $300M in total.

I wonder what the average pay and portfolio return for all hedge fund managers are. Do they get a return that is close to the whole market, i.e., the mediocre 4% return last year? Do the top managers consistently earn top pay every year? As I said in another blog, the hedge fund as an industry does not seem to outperform the market over the last decade. They do perform better in bad time because they are allowed to go shorting as a hedge against market downturn.

All things considered, there may be reason for slim hope that, someday, even I might earn $300M a year too, if I am given $10 billion to manage!

More on hedge funds:

Book Review: The Philosopher Kings Of Hedging