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Depression? What depression?
Fears that the recession could turn into something far worse are wracking markets around the globe. Although the hedge fund industry didn’t escape the carnage of what many are calling the worst financial crisis since the 1930s, some managers are doing just fine, raking in money hand over fist. In 2008, in fact, four of them made more than the $1 billion that JPMorgan Chase & Co. paid for troubled investment bank Bear Stearns Cos. last spring in a shotgun merger orchestrated by the feds. James Simons of black-box fame at Renaissance Technologies Corp. earned a whopping $2.5 billion. He was trailed by John Paulson of Paulson & Co. ($2 billion), John Arnold of Centaurus Energy ($1.5 billion) and George Soros of Soros Fund Management ($1.1 billion). All but Arnold are repeat top-four finishers in Alpha ’s eighth annual ranking of the world’s best-paid managers.
Altogether the 25 highest-earning hedge fund managers made $11.6 billion, making 2008 the third-best year for the 25 biggest earners since Alpha began compiling the list. The group’s average take-home pay was $464 million. That number may pale next to last year’s, when the top 25 earned a record average of $892 million apiece, but the fact remains that $464 million is a kingly sum, especially during a year of global recession, stock market wipeouts and vanishing wealth.
Alpha uses two components to calculate earnings: the managers’ shares of their firm’s performance and management fees, as well as gains on their own capital. For multibillionaires like Simons and Paulson, the latter can be substantial. (We exclude, however, proceeds from the sale of a firm or a public offering.)
A stark sign of the times can be seen in the wave of layoffs across the financial sector. Since July 2007, as the overall U.S. unemployment rate surged past 8 percent, the highest level since 1983, some 260,000 jobs have been lost at banks, brokerage firms and asset management companies, including 10,000 at hedge funds alone. This year the hedge fund industry will shed an additional 20,000 jobs, according to an estimate by Options Group, a Wall Street recruiting firm. The reason, plain and simple: lousy performance and heavy redemptions.
Many managers who had grown accustomed to a regular spot in our ranking weren’t spared Wall Street’s implosion, though some nearly made the roster (see "Capsized (But Alive)"). Fifteen of the top 25 this year either are making their debuts or weren’t on the list last time (which included the 50 biggest earners). Just five managers in the previous top 25 qualified this year, and most of those who were bumped lost hundreds of millions of dollars of their own money (see "Eight Men Out"). One of them — Kenneth Griffin of Citadel Investment Group — was personally out $2 billion after his two main funds were each off by 55 percent in 2008.
In addition, three managers whose firms went public in the past two years amid much fanfare also fell off the list: GLG Partners’ Noam Gottesman and Pierre Lagrange, and Och-Ziff Capital Management’s Daniel Och. Adding insult to injury, their stocks tanked last year. Gottesman and Lagrange each lost about $660 million in paper wealth, as GLG’s share price plummeted from $13.60 to $2.27. Och saw $3 billion of his wealth vaporize, as Och-Ziff stock dropped from $26.28 to $5.15.
"Who cares who’s rich?" you may ask.
Congress does. In November the five managers who headlined the Alpha list of top hedge fund earners for 2007 — Harbinger Capital’s Philip Falcone (off the list this year), Griffin, Paulson, Simons and Soros — were subpoenaed to testify before the House Committee on Oversight and Government Reform, which was investigating the causes and effects of the financial crisis that has since enveloped the world (see "Facing U.S. Congress"). The hedge fund managers were treated deferentially, but if and when they are called again, they may not be handled with kid gloves, given all that has gone wrong with the economy since then.
Top 25 Highest-Earning Hedge Fund Managers
Times may be tough for most folks, but not for the top moneymakers on Alpha magazine’s eighth annual ranking of the world’s highest-earning hedge fund managers. They took home, on average, an anything but average $464 million apiece in 2008. Four hedge fund managers took home more than $1 billion each. Altogether the 25 highest-earning hedge fund managers made $11.6 billion, making 2008 the third-best year on record since Alpha began compiling its exclusive ranking.
Alpha uses two components to calculate earnings: the managers’ shares of their firm’s performance and management fees, as well as gains on their own capital invested in their funds.
The index below is a guide to the profiles of this year’s top-earning managers. Click on the bolded names below to read the top 11 hedge fund managers' profiles.