Pennies from heaven? No, make that gold

By Michelle Celarier

Over the past several tumultuous years in the financial markets, hedge funds have proved their mettle beyond a doubt. In 2007 hedge fund managers were among the first to accurately predict the housing bust, and the following year they were among the few to realize that the banks were teetering. Last year, as the world struggled through the Great Recession, hedge funds distinguished themselves again by quickly recognizing the turn in the markets.

As a result, the top managers had a record payday. The 25 hedge fund managers who find themselves on our annual Rich List earned a total of more than $25 billion—more than double the $11.6 billion of the top 25 in 2008. The earnings of the richest hedge fund managers also exceed the record of $22.3 billion that the top 25 made in 2007. And last year—in another record—seven individuals brought home more than $1 billion each.

Appaloosa Management’s David Tepper climbed to first place on the list this year, earning $4 billion, which was even higher than the $3.7 billion that John Paulson of Paulson & Co. made when he ranked No. 1 in 2007.

Although Paulson, who ranks fourth this year, correctly envisioned the financial bust that the housing bubble would create, Tepper was the winner coming out the other side of the financial meltdown. In the fall of 2008, he was willing to take a leap of faith that the banks—or at least some of them—would eventually recover (especially when he realized the government was promising to prop them up). By getting in first, Tepper was way ahead of the move in bank stocks and has ridden them all the way up.


These two men no doubt have nerves of steel. They also share a willingness to take unpopular positions based on their years of experience supported by painstaking attention to analysis and detail—with a lot of money riding on the outcome. If any one thing gives a manager a swaggering image and makes him a star, that’s it.

This year’s Rich List marks the ninth year we’ve offered this ranking, first in Institutional Investor magazine, then in Alpha, and now in AR: Absolute Return + Alpha. In 2001, the first year of the ranking, the total income of the top hedge fund managers was less than $5 billion—just a little more than Tepper made in 2009. At the time, it was big news that 11 hedge fund managers made more than $1 million each. And George Soros, who ranks second for 2009, was the richest, with $700 million.

In 2002, when the first Rich List appeared, we noted that hedge funds were redefining wealth on Wall Street. Now it’s fair to say they are Wall Street.