Hundreds of Millions for Top Hedge Funders
May 26, 2006 — -- Where is the money and power on Wall Street? A new survey reports that it is firmly in the hands of those who run hedge funds.
How about an annual payday of $1.5 billion? According to a survey by Alpha, a magazine published by the highly watched Institutional Investor, that's just what James Simons, founder of Renaissance Technologies, made in 2005. His flagship Medallion Fund, with $5.3 billion invested, returned 29.5 percent, net of fees.
Hedge funds are lightly regulated funds that attract billions of dollars from institutions and millionaire private investors. Those funds favor nontraditional investments: They short stocks, put money into commodities and play currency markets. And until recently, the payoff has been huge.
According to Alpha, to make the list of top 25 hedge fund earners last year, hedge fund managers had to "take home" at least $130 million. Because of a tie, there were 26 hedge fund managers who made $130 million or more.
No. 2 on Alpha's list after Simons is the venerable T. Boone Pickens, the 78-year-old oilman. His 2005 earnings: $1.4 billion. No. 3 was legendary fund manager George Soros at $840 million.
Alpha's ranking was based on estimates of the traditional fee structure by hedge fund managers. That structure historically has been to charge 2 percent of money under management and 20 percent of the fund's performance. But in recent years, the performance fees have often been double their traditional level. Given huge returns, it's hard to find an investor who complains.
Alpha says the average pay for the top 26 hedge fund managers is $363 million. And that pay has increased dramatically over the last few years. In 2002, for example, entry to Alpha's top 25 list required a paltry $30 million. By 2004, that had reached $100 million. In 2005, as mentioned, it was $130 million.
The big paydays are the result of years of double-digit returns for investors.
"What it shows is clearly a shift in power on Wall Street," says Michael Peltz, an editor at Alpha. "The best investors say this is where to play the game."
Related Stories
ABC News Live