Top hedge fund managers earning 'more than some nations' - up to 1.7 Billion each
Top hedge fund managers earning 'more than some nations'
May 11, 2016
Top bosses collectively took home £9bn last year, despite
some of their funds losing investors' money
Kenneth Griffin, the founder and chief executive of
Citadel, took home $1.7bn
The highest-paid executives in the hedge fund industry
were last year paid collectively more than the value of "the entire
economies of Namibia, the Bahamas or Nicaragua", reports The Guardian.
According to the annual estimates published by
Institutional Investors Alpha, the top 25 executives earned just shy of $13bn
(£9bn). The top two, Citadel founder and chief executive Kenneth Griffin and James Simons, the founder and chairman of
Renaissance Technologies, each took home $1.7bn (£1.17bn), "equivalent to…
112,000 people taking home the US federal minimum wage of $15,080".
"Even as regulators push to rein in compensation at
Wall Street banks, top hedge fund managers earn more than 50 times what the top
executives at banks are paid," notes the New York Times.
Beyond simply enraging a wider population earning a tiny
fraction of these amounts, the data points to some interesting trends that may
worry hedge fund investors. Namely, there are a number of managers making ever
larger pots of money, even when performance is poor and investors' money is
being lost.
As an example, Ray Dalio made $1.4bn (£970m) in 2015
through Bridgewater Associates, the world’s biggest hedge fund firm with $150bn
(£103bn) of assets under management and whose risk parity fund, called All
Weather, lost seven per cent.
In all, five men – and they are all men – made bumper
profits despite their funds performing poorly in a market the billionaire
manager Daniel Loeb has called a "hedge fund killing field".
Big payday for hedge fund managers
This is because hedges funds tend to operate a "two
and 20" remuneration model, where the firm takes a two per cent fee out of
the assets of the fund and 20 per cent of any profits above a certain
"hurdle" rate. Some firms are now making more money from the two per
cent element by amassing a huge asset base than they could ever make from
outperformance.
Todd Petzel, the chief investment officer at private
wealth management firm Offit Capital, said this poses a due diligence challenge
for institutional investors in what is meant to be a risky alternative asset
class.
"Once a hedge fund gets to be large enough to
produce incredibly outsized remuneration, the hardest part of due diligence is
determining whether the investment process is affected," he explained.
"Is the goal to continue to make money in a risky environment or is the
goal to preserve assets on which you collect fees?"
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