Hedge Fund Fees Are Optional – Regulations Are Not

Much is made of the fees hedge funds charge clients. Hedge fund fees and hedge fund manager earnings are almost daily fodder for media pundits and presidential candidates alike. Arguments are put forward, which compare the top 25 hedge fund manager salaries in 2014 to the aggregate salary of the country’s 158,000 kindergarten teachers. The former earned $11.6 billion and the latter earned $8.5 billion. Lips quiver, scowls emerge and, with palpable indignation, they inquire, “How fair is that?”

Freedom of Choice

The United States touts itself as a free society, a democracy, a place where anyone willing to make the effort can achieve their dreams, a place where you can attain any station in life to which you aspire, but—heaven forbid if you succeed!

Kindergarten teachers are besmirched because they don’t make huge salaries and hedge fund managers are maligned for successfully managing their investors’ money. Did not the overwhelming majority of kindergarten teachers understand the salary structure for that vocation? Were there kindergarten teachers who had a burning desire to be a hedge fund manager, but were told, “No, I’m sorry, you can’t do that?”

Rocket scientists earn around $100,000 per year, on average, and we can be reasonably certain that most of these rocket scientists understood the salary limitations before pursuing their career path. Are rocket scientists and kindergarten teachers intelligent enough to be hedge fund managers? Of course they are! However, they chose to pursue other options … emphasis on “chose.”

The median annual income for a hedge fund senior portfolio manager is around $500,000 and the median annual income for a founder is about $1.2 million. Good money to be sure, but nothing that approaches the enormous salaries earned by outliers in the hedge fund industry.

And While We Are on the Subject of Choice

There have been no reported cases of individuals or institutions having been forced to invest in a hedge fund against their will. Regardless of which side of the argument you find yourself, hedge fund fees are the price of admission. If you want in, you pay the fees. If you don’t want to play, you certainly don’t have to play.

The Tsunami of Regulations

While the media and politicians are quick to point an accusatory finger at the hedge fund industry, CEOs and the uber-wealthy in general, little mention is made of the estimated $24 billion regulatory burden Dodd-Frank has exacted from the financial sector and consumers of the financial sector’s products and services. Other regulations in the pipeline promise to add an additional $7.8 billion to the current total.

Hedge Fund Jobs

Clearly, significant opportunities for employment in the hedge fund industry exist for those with regulatory experience. The government has laid a veritable minefield for the financial industry to traverse. Those individuals with compliance skills and/or a strong background in regulation will find interviews. If there is any “silver-lining” to the groundswell of financial regulation since the 2008 financial crisis, this is it.