Hedge fund CEO James Simons earns $2.5 billion

— -- James Simons, head of Renaissance Technologies, deposed John Paulson as the world's best-paid hedge fund manager last year as the credit crisis cut pay by 48% from 2007, Institutional Investor's Alpha magazine reported Wednesday.

Simons, chairman and chief executive officer of Renaissance, earned $2.5 billion, more than Paulson, the founder of Paulson & Co., who reaped $2 billion last year, the magazine said.

The top 25 managers earned a total of $11.6 billion, as their average compensation fell 48% to $464 million, Alpha said.

The credit crisis has slashed hedge fund returns and eroded pay.

Just five of last year's top-paid managers made the list this year, Alpha said.

Citadel Investment Group founder Ken Griffin, who ranked fifth in 2007, dropped off the list as his funds lost him $2 billion, Alpha said.

Compensation for U.S. hedge fund employees may drop as much as 25% this year as the firms try to recoup last year's losses, according to estimates by Alan Johnson, founder of Johnson Associates, a firm that advises on pay.

The average hedge fund declined 19% in 2008, the worst year in nearly two decades, according to Hedge Fund Research.

About 1,471 funds, 15% of the $1.4 trillion industry, shut down last year, Hedge Fund Research says.

John Arnold, a former Enron trader, took third place with $1.5 billion after his Centaurus Energy fund rose 80%, the magazine said.

George Soros, 2006's top earner, placed fourth with about $1.1 billion.

New arrivals on this year's top 25 list include Pierre Andurand and Dennis Crema, founder of BlueGold Capital Management, which has returned 307% since starting last year.

Hedge funds are mostly private and unregulated pools of capital whose managers can buy or sell any assets, participating substantially in the profits of the money invested.

Alpha estimates managers' earnings based on assets under management, fees, returns, personal investments in the funds, and stakes in their firms.