Not everyone can reach the top of the hedge fund manager pyramid. Though looking at superstars such as John Paulson, Ray Dalio, David Tepper and others who are pulling in billion-dollar-a-year incomes, it does tend to motivate people to get a hedge fund job.
Paulson proved he has a consistent winning touch as he netted more than $5 billion in hedge fund compensation in 2010. The Wall Street Journal notes that this could be the single largest one-year haul in investing history. Others, such as Dalio, Tepper, and James Simons of Renaissance Technologies LLC, pulled in well over a billion dollars for their funds.
For comparison purposes, the Journal lists James Gorman, chief executive of Morgan Stanley, who is expected to receive compensation of less than $15 million for 2010.
Paulson and other managers made winning calls on commodities, emerging-market companies, bank shares and U.S. Treasury bonds to rack up their gains. Their success, as well as other managers, have lifted hedge fund industry assets by 20% in the past year to a near-record $1.92 trillion, according to data provided by Hedge Fund Research, Inc.
However, the average hedge fund’s gains of 10.49% last year still falls far short of the 15% gain for the S&P 500, and below the 19% gain by the average mutual fund. This contrasts with the big bets Paulson made in 2007, betting against subprime mortgages. Back then, some of his funds reportedly earned gains as high as 590%.
The giant gains by Paulson and other top managers may have more to do with the sheer size of their funds, rather than posting spectacular performance. Paulson’s firm manages roughly $35 billion in assets, according to Reuters. He invests his entire personal fortune in his funds. His gold fund reportedly climbed 35% in 2010, adding to his payday.
The giant payouts at hedge funds confirm that hedge funds are the modern-day equivalent of gold mines. The huge payouts could spark even more professionals from proprietary trading desks at investment banks and at mutual fund companies to seek hedge fund jobs or start their own firms.
“Many of these big hedge fund managers are now earning more than professional athletes,” said Kenneth Murray, president of Mercury Partners, which recruits staff for hedge funds. “And they can do this for the rest of their lives, unlike sports stars who have to find another job after the age of 35.”
What’s your take? Do you think these massive payouts are an anomaly given the bounce-back in the markets in 2010? Or a sign of more to come? Add your comments below.