This content is from: ThinkTank

Really Big Bucks

When it comes to pure wealth creation — arguably the biggest motivation for the majority of hedge fund managers — times have never been better.

Yes, annual hedge fund investment returns for the past few years are only half of what they were during the 1990s. And sure, the proliferation of new funds has made it difficult for managers to rack up big gains in most hedge fund strategies. But when it comes to pure wealth creation — arguably the biggest motivation for the majority of hedge fund managers — times have never been better. Thanks to the power of hedge fund math, driven by management fees and performance incentives, more managers are making more money today than ever before, as evidenced by our fifth annual survey of the biggest earners.

One year ago Edward Lampert of ESL Investments made headlines when he became the first manager in our survey to earn $1 billion in a year. This time there are two who break the billion-dollar barrier: James Simons of Renaissance Technologies Corp. and BP Capital Management’s T. Boone Pickens. In 2005, math whiz Simons, we calculate, earned a staggering $1.5 billion, edging out oil tycoon Pickens, who took home an equally astounding $1.4 billion from two hedge funds he quietly launched ten years ago. Although Lampert saw his earnings cut by more than half in 2005, he still made a cool $425 million, good enough for sixth place on our list. Rounding out the top five are three longtime managers: Soros Fund Management’s George Soros, $840 million; SAC Capital AdvisorsSteven Cohen, $550 million; and Tudor Investment Corp.’s Paul Tudor Jones II, $500 million.

This year our list of the top 25 money earners actually includes 26 managers, thanks to a tie at No. 25 between William Browder of Hermitage Capital Management and Marc Lasry of Avenue Capital Group. Browder is one of eight managers who appear for the first time. (John Griffin of Blue Ridge Capital, No. 18 with $175 million, returns to the list after a two-year absence.)

Other newcomers are Pickens, David Shaw of D.E. Shaw & Co. (No. 9 with $340 million); TimothyBarakett and David Slager of Atticus Capital (No. 14 and No. 20, respectively, with $200 million and $150 million); William von Mueffling of Cantillon Capital Management, who is tied with Barakett at No. 14 with $200 million; and Noam Gottesman and Pierre Lagrange of London-based GLG Partners, both tied with Slager at No. 20 with $150 million.

One thing that never seems to change for this exclusive club: The cost of admission keeps going up. A manager had to earn at least $130 million in 2005 to qualify for a place among the top 25 money earners, compared with $100 million in last year’s survey and just $30 million in 2001 and 2002. The 26 managers on the list made, on average, $363 million in 2005, a 45 percent jump from the $251 million the top 25 earned in 2004. The average, of course, got a boost from the billion-dollar boys, Simons and Pickens. But the median earnings also grew, jumping by a third, from $153 million in 2004 to $205 million last year.

Two managers who made the list last year — Thomas Steyer of Farallon Capital Management and Leon Cooperman of Omega Advisors — are noticeably absent this time. Both Steyer and Cooperman fail to qualify despite earning at least $100 million, an amount that would have landed them among the top ten managers just three years earlier.

This swelling of personal gains has made many hedge fund managers enormously wealthy. By our estimates, at least 13 of the managers on our list this year are billionaires — Simons; Pickens; Soros; Cohen; Jones; Lampert; Shaw; Bruce Kovner of Caxton Associates and David Tepper of Appaloosa Management (tied at No. 7); Israel Englander of Millennium Partners (No. 11); Kenneth Griffin of Citadel Investment Group (No. 13); James Pallotta of Tudor Investment Corp. (tied for No. 14), and Louis Bacon of Moore Capital Management (No. 19).

Investors have long insisted that hedge fund managers have a substantial percentage of their net worth tied up in their own funds to ensure that the interests of all parties are aligned. Now, as hedge fund assets have grown, and managers’ assets in their own funds have grown with them, managers no longer need to put up high returns to make a lot of money. Six managers this year make the top 25 despite generating single-digit returns: Caxton’s Kovner, Citadel’s Griffin, ESL’s Lampert, Tudor’s Pallotta, Raymond Dalio of Bridgewater Associates and Och-Ziff Capital Management Group’s Daniel Och.

“Clearly, there is a disconnect between pay and performance,” says Antoine Bernheim, publisher of and president of Dome Capital Management in New York, which has been advising European institutional and private investors on their hedge fund portfolios since 1984. “People are getting paid extraordinary amounts of money for performance that is mundane.”

As hedge funds have grown, management fees — which mostly range between 1 percent and 5 percent, depending on the manager — have become an increasingly important piece of the economic equation. Ten years ago a $10 billion hedge fund was rare; today there are 20 managers who run at least that much in assets.

“You can make T-bill returns and be just fine because you have a 2 percent management fee,” says Mark Yusko, president and chief investment officer of North Carolina–based investment advisory firm Morgan Creek Capital Management.

Of course, some managers, such as Jeffrey Gendell of Tontine Associates, have become very wealthy because of good old-fashioned performance. Gendell made $215 million in 2005 thanks to a 38 percent net return, which followed 100 percent-plus returns in 2003 and 2004.

The billions and billions of dollars being accumulated by hedge fund managers is a concern for investors. “The wealth creates the potential for major distractions for all managers who are successful,” says Peter Adamson, chief investment officer for the Los Angeles–based Broad foundations and Eli Broad family office, which have invested more than $1 billion in hedge funds. “Wealth has the potential to have a dulling influence on a manager’s drive,” adds Morgan Creek’s Yusko.

Still, investors like Yusko acknowledge that money is the ultimate yardstick that the top hedge fund managers use to measure their success.

“In every profession, whether it is a football coach or a surgeon, the best person makes the most money,” he explains. “The same is true with investment managers. The great ones are hedge fund managers.”

1 - James Simons
Renaissance Technologies Corp.
$1.5 billion

JAMES Simons’ legend grows apace with his portfolio and his philanthropy. Last year the veteran Long Island hedge fund manager’s quant-driven Medallion hedge fund returned 29.5 percent net. That was all the more remarkable given the $5.3 billion fund’s 5 percent management fee and 44 percent performance fee. (The gross return was nearly 60 percent.) Even so, Medallion fell short of its roughly 34 percent annualized net return since its 1988 inception.

The odds are pretty good that Simons will figure out how to make up that shortfall. Many hedge funds are run by teams of pointy-headed rocket scientists, but Renaissance Technologies Corp. might be able to run its own space program. The 68-year-old Simons, who has a Ph.D. in mathematics from the University of California at Berkeley and has taught at Massachusetts Institute of Technology and Harvard University, has packed his East Setauket, New York, enterprise with math and computer whizzes. These quantitative specialists use arcane programs to trade the globe’s most liquid securities rapidly and frequently, using lots of leverage.

Nonetheless, no program can entirely capture the markets’ vicissitudes. The firm’s new $3.4 billion Renaissance Institutional Equity Fund, which Simons says in an investor document has the capacity to handle as much as $100 billion in assets, got off to a slow start last year, rising just 5 percent from its August 1 inception through year-end. RIEF’s $20 million minimum investment gears it to institutions; unlike the shorter-horizon Medallion, the new fund takes mostly long positions and holds them for relatively protracted periods. RIEF’s gain in assets came as Simons moved Medallion ever closer to being a closed portfolio for himself, his friends and his employees.

Always generous, Simons is devoting a large amount of time and money to philanthropies near and dear to him. He has donated $38 million to research the cause of autism, with which his teenage daughter was diagnosed when she was young. He and his wife, Marilyn, are said to be prepared to spend a further $100 million on promising autism studies.

Early this year Simons, who once chaired the math department at the State University of New York at Stony Brook, gave $13 million to nearby Brookhaven National Laboratory so that it could keep running its Relativistic Heavy Ion Collider, the only device in the world that can mimic the “Big Bang” in the lab. Simons, along with a large number of other managers on our list of top money earners, is supporting New York State Attorney General Eliot Spitzer’s bid to become governor of New York.

2 - T. Boone Pickens Jr.
BP Capital Management
$1.4 Billion

T. Boone Pickens JR. has always thought as big as his home state, Texas. Back when he was running Mesa Petroleum Corp., which he founded in 1956, Pickens mounted audacious, if quixotic, bids for Gulf Oil, Unocal Corp. and Phillips Petroleum Co. “I’m sick of people calling me a corporate gunslinger,” he grumbled to a radio interviewer in 1986.

Now, Pickens, 78, risks being called other epithets in his latest incarnation as a hedge fund manager who has found a new way to wildcat. His ten-year-old private investment firm, BP Capital Management, hit a couple of gushers last year. Pickens’s equity-oriented BP Capital Energy Equity Fund finished 2005 up 89 percent net of fees. And, hold on to your Stetson, his BP Capital Commodity Fund soared 650 percent. Pickens’s multibillion-dollar fortune is estimated to have tripled during the past couple of fat years.

The oilman actively manages both funds, principally in devising their energy futures strategy. Throughout 2005, Pickens reckoned on oil prices climbing, aggressively playing futures as well as coal companies and oil refiners. And he reportedly shorted companies that stood to be hurt by high energy costs. But late in the year, he spun around like a cutting horse and bet that the slowing economy would reduce energy demand. He positioned BP accordingly.

Pickens, who trained as a geologist at Oklahoma State University, was recently named one of America’s top ten givers by The Chronicle of Philanthropy, with $229 million in donations in 2005. After Hurricane Katrina he chartered a plane to Baton Rouge to pick up and transport homeless pets to shelters in California. Pickens was quoted as saying he plans to give away up to 80 percent of his fortune.

3 - George Soros
Soros Fund Management
$840 Million

George Soros used to shake up the world’s currency markets, most infamously by forcing the Bank of England to devalue the pound; now he tries to rattle America’s conservative political establishment. Although the 75-year-old Hungarian native hasn’t managed money day to day in a decade or more, he still ranks among the highest-earning hedge fund managers, because a big chunk of his wealth is in New York–based Soros Fund Management’s $9.3 billion Quantum Endowment Fund. This multistrategy vehicle, which takes less risk than did Soros’ Quantum funds of the 1990s, rose 12.3 percent net last year.

How Soros Fund Management invests these days is a bit of a mystery. But at year-end the firm had a roughly $2.5 billion equity portfolio spread over 223 stocks. By far the biggest holding was discount airline JetBlue Airways Corp. Securities and Exchange Commission filings show that Soros separately maintains a $149 million equity portfolio that contains just five names: JetBlue, Apex Silver Mines, Bluefly, Integra LifeSciences Holdings Corp. and Source Interlink Cos.

Soros’ private investments tend toward the eclectic. Earlier this year he led an investment group that paid $900 million to Viacom International to buy DreamWorks SKG’s film library. Tokyo-based Ishin Hotels Group, a joint venture between Soros Real Estate Investors and Westmont Hospitality Group, boosted its portfolio of hotels last year to 15 properties. The hedge fund manager failed, though, in his bid with D.C. entrepreneur Jonathan Ledecky to buy the Washington Nationals baseball team.

4 - Steven Cohen
SAC Capital Advisors
$550 Million

StevEN Cohen lives on a walled 14-acre estate bordering the Long Island Sound in Greenwich, Connecticut. The walls weren’t high enough to keep him out of the spotlight earlier this year when Canadian drugmaker Biovail Corp. filed a lawsuit against Cohen and SAC Capital Advisors, accusing them and others of colluding with independent research firm Gradient Analytics of Scottsdale, Arizona, to manipulate its stock price. Cohen and SAC have strongly denied the allegations.

Legal distractions aside, Cohen is doing all right. In 2005 his various hedge funds were up, on average, a net 18 percent, an impressive gain given that he charges a 1 to 3 percent management fee and a whopping 44 percent performance fee, on average. In general, SAC benefited from strong gains in financial, industrial and health care stocks, as well as statistical arbitrage, macro investing and credit. A frenetic trader, Cohen had spread his firm’s $8 billion equity portfolio among 1,803 different positions at year-end.

After returning investors’ capital for several years, Cohen is back in building mode. He is trying to make his traditional long-short equity shop more attractive for pension funds and other institutional investors by expanding the firm’s quantitative strategies group and launching a new multistrategy fund. SAC last year added 60 people, including nine portfolio managers and several research analysts, bringing the firm’s head count to 550.

Cohen, 49, grew up in affluent Great Neck, New York, across the Sound from his Greenwich fortress. An avid art collector with a fondness for impressionist, modern and contemporary works, he has for the past four years been named by ARTnews as one of the U.S.’s top ten collectors.

5 - Paul Tudor Jones II
Tudor Investment Corp.
$500 Million

The Robin Hood Foundation’s annual benefit often brings out the quirkier sides of Wall Streeters along with their checkbooks. For last year’s gala Paul Tudor Jones II, a co-founder of the charity, dressed as Star Wars’ Darth Vader. “This is what will happen to you,” Jones, who is 51, warned traders under 40, according to those who were present.

Going over to the dark side hasn’t hurt his performance. Since opening Tudor Investment Corp. in 1980, Jones has never had a down year. In 2005 the firm’s $5.3 billion flagship Tudor BVI Global Fund climbed 14.7 percent net of its 4 percent management fee and 23 percent performance fee, marking its fifth year in a row of double-digit net returns. Most of the gains came from global equities, including macro bets in Japan, energy and emerging markets. (James Pallotta, No. 14, oversees Tudor’s Raptor funds and himself earned $200 million.)

Jones, whose Greenwich, Connecticut–based firm manages $12.7 billion in all, is a staunch supporter of wildlife conservation. He owns Grumeti Reserves in Tanzania’s Western Serengeti and was recently lauded by the East African country’s Parliament for not permitting hunting in his reserve. He has given money to Democrats in key races in 2006, backing New York State Attorney General Eliot Spitzer’s run for the governorship of New York.

6 - Edward Lampert
ESL Investments
$425 Million

Time magazine, in its May 6 issue featuring “the lives and ideas of the world’s most influential people,” poses this question about one of its 100 profile subjects: Is Eddie Lampert the best investor on Wall Street?

Lampert’s fund was up just 9 percent in 2005, chiefly because of a sizable cash position. As a result, he wound up taking home about $600 million less than the more than $1 billion he pocketed in 2004, when he was No. 1 on our list. All the same, Lampert’s investors have little to bellyache about. Even with last year’s listless showing, ESL Investments has compounded at about 28 percent a year, on average, since the 43-year-old launched it in 1988 at 26, fresh out of Goldman, Sachs & Co.’s risk-arbitrage group.

ESL’s prospects now depend upon the health of mass-market retailer Sears Holdings Corp. Since Lampert took a recapitalized Kmart public in the spring of 2003, then merged it with Sears, Roebuck & Co. in mid-2005, his investment has soared tenfold. The company accounts for two thirds of Greenwich, Connecticut–based ESL’s $11 billion equity portfolio. Sears’ shares finished last year up 16.8 percent. ESL’s other two big positions: a $1.7 billion stake in car retailer AutoNation, whose shares rose 13 percent in 2005, and a $2 billion investment in parts supplier AutoZone, which was flat.

One question on the minds of Sears shareholders is what Lampert, who is chairman, plans to do with the $4.4 billion sitting in its till. At Sears’ annual meeting in April, he hinted at additional acquisitions. Meanwhile, Lampert is battling New York–based hedge fund Pershing Square Capital Management for control of Sears’ Canadian operation (Sears Holdings owns a majority stake).

7 - Bruce Kovner
Caxton Associates
$400 Million

Macro trader Bruce Kovner is best known for weaving in and out of currencies, commodities and bonds while giving comparatively short shrift to stocks. So it was eye-opening when in last year’s second quarter the Caxton Associates founder tripled his exposure to equities, then kept adding to his holdings until they reached $16.7 billion at the end of 2005’s third quarter. (Caxton’s $12.5 billion in assets is augmented by plenty of leverage.) Although Kovner pulled back, at year-end he still had $14.4 billion in equities.

This departure from form appears to have been a shrewd one for Caxton: Equity was the only one of the firm’s asset classes to be in the black every quarter in 2005. By painful contrast, Caxton lost money on currencies and commodities in each of 2005’s first three quarters. As a result, Kovner’s flagship $9 billion Caxton Global Offshore fund gained a modest 8 percent last year; his $1.2 billion GAMut Investments — an offshore fund he runs for GAM Fund Management — finished up a disappointing 6.4 percent.

This is the third straight year of single-digit returns for New York– based Caxton, whose long-term performance remains exceptional: roughly 30 percent for Caxton Global. Kovner isn’t cutting back on his many charitable activities. Early this year the 61-year-old former Harvard Fellow (and onetime cabdriver) donated 139 musical manuscripts by Bach, Beethoven, Mozart and other famous composers to New York’s Juilliard School, whose board he chairs.

9 - David Shaw
D.E. Shaw & Co.
$340 Million

David Shaw, founder and chairman of New York–based D.E. Shaw & Co., is locked in a battle with Raymond Dalio of Bridgewater Associates (No. 17) for the title of manager of the world’s biggest quantitative hedge fund. Although D.E. Shaw falls short in terms of assets under management — its $19.9 billion at the end of 2005 trailed Bridgewater by about $1 billion — Shaw takes personal honors when it comes to making money last year.

Debuting on our list at No. 9, Shaw delivered net returns to his shareholders in the low- to mid-teens, including 16.6 percent for his flagship $6.5 billion macro fund. A former Columbia University computer science professor with a Ph.D. from Stanford University, Shaw has referred to what he does as “computational finance,” since he founded his firm in 1988 with $28 million in seed money from four limited partners, including S. Donald Sussman of Paloma Partners Management Co. Nearly two decades later investors still don’t know much more than that about how D.E. Shaw’s market-neutral strategies work, but they’re willing to pay a 3 percent management fee and a roughly 30 percent performance fee for the privilege of investing in them.

Shaw, whose academic research focused on parallel computing used in artificial intelligence, got his start on Wall Street in 1986, when he left Columbia to join Morgan Stanley’s legendary analytical proprietary-trading group. Like James Simons at Renaissance Technologies Corp., he likes to hire from academia; his firm recruits from top computer science programs at schools like Massachusetts Institute of Technology and Carnegie-Mellon University. The firm employs about 700 people, including a 300-person software support staff in Hyderabad, India.

When Shaw, 54, isn’t working on financial algorithms, he is helping to fight disease. He is chairman of the Portland, Oregon–based Schrsˇdinger companies, which produce software for drug research. Their clients range from pharmaceuticals companies to biotechnology companies to governmental agencies.

10 – Stephen Mandel Jr.
Lone Pine Capital
$275 Million

Googling the name of Stephen Mandel Jr., the low-key president and founder of Greenwich, Connecticut–based Lone Pine Capital, returns a paltry 166 hits. Buying Google shares, however, has generated huge returns for many hedge fund managers, including Mandel. In 2005 the former Tiger Management Corp. retailing and consumer stock analyst made at least $500 million on his investment in the Mountain View, California–based search engine giant, his second-largest holding at year-end. That helped the 50-year-old long-short equity manager, who founded Lone Pine in 1997, break into the top ten hedge fund moneymakers.

Mandel is arguably the most successful of the Tiger cubs who left legendary founder Julian Robertson Jr. to start their own funds. Last year his funds, which he names after trees, continued to rack up impressive returns. Lone Cypress was up 32 percent before fees, and Lone Kari surged 34 percent before fees. Mandel’s new long-only fund, Lone Cascade, was up 27 percent.

Neither a growth nor a value investor, Mandel looks for good companies run by good people, with stock valuations below what he deems to be their intrinsic value. This search has taken him to high-fliers like Google as well as to homebuilders and foreign banks. Almost half of his assets are invested in non-U.S. stocks. Mandel has 12 investment professionals searching for ideas globally in seven broad industry groups — consumer, financial, health care, tele- communications and media, technology, business services and industrials.

Mandel, who has a BA in government from Dartmouth College and an MBA from Harvard Business School, is one of a small number of hedge fund managers willing to share the wealth, giving equity stakes to about half of his 49 employees. His Lone Pine Foundation, which had more than $9 million in assets at the end of 2004, has been a big supporter of child-related charities like Greenwich-based Family Centers, a group that provides education and counseling programs.


11 - Israel Englander
Millennium Partners
$230 Million

Israel (IZZY) Englander may finally be putting the mutual fund trading scandal behind him. In December the Millennium Partners founder, three Millennium entities and two of the firm’s top executives, along with a trader, agreed to pay more than $180 million in penalties and disgorgement of gains to settle charges by New York State Attorney General Eliot Spitzer and the Securities and Exchange Commission that they had participated in what the SEC characterized as “a fraudulent scheme to market-time mutual funds.” Englander, without ever admitting to or denying the charges, agreed to an order that bars him from associating with a registered investment company for three years and requires him to pay a $30 million penalty.

Englander is still able, however, to run his hedge fund firm because — unlike a mutual fund firm — it is not an open-end investment company. In any case, his legal problems seem not to have hampered his investment performance. Last year, Englander’s two multistrategy hedge funds — Millennium International and Millennium USA — were up about 13.5 percent net. Their three biggest strategies: statistical arbitrage, fundamental long-short equity and fixed income. At year-end, Englander’s firm had $5.3 billion under management.

The 57-year-old hedge fund manager holds a finance degree from New York University. He dropped out of its MBA program to work on Wall Street. His Englander Foundation gave out more than $3.5 million in 2004 (the last year for which records are public), mostly to religion-oriented Jewish organizations. Englander also made sizable donations to Cornell University’s Weill Medical College, Brown University and the International Center of Photography.

12 –Jeffrey Gendell
Tontine Associates
$215 Million

Jeffrey Gendell has rapidly emerged from relative obscurity to become an elite midsize hedge fund manager. Last year his Tontine Partners, a value-oriented and event-driven long-short equity fund, surged 38 percent net on the heels of two straight years of triple-digit returns. Tontine Financial, which focuses on small thrift banks, had a modest 11.6 percent return; it had climbed nearly 20 percent in 2004, after four years of better-than-40 percent returns. Small wonder that Greenwich, Connecticut–based Tontine Associates, launched in 1997, has amassed nearly $5 billion in assets.

Gendell, 46, who learned his craft at Leon Levy’s and Jack Nash’s Odyssey Partners, is a cross between a value investor and an event-driven player. His financial funds have benefited from his buy-and-hold strategy of investing in the consolidation of banks and thrifts. The more-diversified Tontine Partners has made big bucks on cyclical stocks and on homebuilders. Gendell drew attention last fall when he bought into AMR Corp., the parent of embattled American Airlines, eventually boosting his stake to 6.4 percent. The shares have roughly doubled in price since he began buying them.

The hedge fund manager, who got a BA in economics from Duke University in 1981 and an MBA from the Wharton School of the University of Pennsylvania in 1984, grew up outside Cincinnati. He and other investors recently paid $6.5 million for a 4 percent stake in the Cincinnati Reds baseball team.

13 - Kenneth Griffin
Citadel Investment Group
$210 Million

Since 1998, Citadel Investment Group’s Kensington Global Strategies Fund has returned better than 20 percent annually, on average, after fees. But during the past three years, Kenneth Griffin’s $9 billion-in-assets flagship fund hasn’t come close to that mark, posting single-digit returns — including just 7.2 percent net in 2005. Kensington’s most recent knock-your-socks-off year was 2000, when it was up more than 50 percent.

Even so, the 37-year-old Griffin is a legend in hedge fund circles. He traded convertible bonds from his Harvard University dorm room and launched his own firm, Citadel Wellington Partners, in November 1990. Chicago-based Citadel has evolved into a multistrategy operation whose signature activity is rapid trading in pursuit of small but, in theory, frequent gains using lots of leverage. The firm likes to boast that it accounts for 3 percent of the average daily trading volume on the New York Stock Exchange and Nasdaq Stock Market. At year-end 2005, Griffin’s portfolio of stocks, options, American depositary receipts and convertible bonds exceeded $30 billion, or two-and-one-half times the firm’s $12 billion in assets.

Griffin, who himself no longer trades, has launched Citadel on an ambitious expansion, opening offices in New York, San Francisco, London, Tokyo and Hong Kong. Last year the firm bought 10 percent of the Philadelphia Stock Exchange. Meanwhile, Citadel has delved into new strategies. Two of them — reinsurance and energy — were battered by Hurricane Katrina. Citadel’s energy traders reportedly lost $150 million in the fall, though the firm says the business has rebounded.

Griffin and his wife, Anne Dias — who manages a Chicago hedge fund, Aragon Global Management — are strong supporters of Chicago educational institutions and art museums, as well as collectors of contemporary art.

14 - Timothy Barakett
Atticus Capital
$200 million

For an activist investor, Timothy Barakett kept a low profile after launching Atticus Capital in 1995, at age 26. That changed last year when Atticus and the Children’s Investment Fund U.K., a London hedge fund, teamed up to block Deutsche Bsˇrse’s $2.5 billion bid for the London Stock Exchange. They proposed instead that the German market issue a special dividend or buy back shares. Six months later Deutsche Bsˇrse’s CEO, Werner Seifert, quit, and the LSE has become the object of ardent courtship by both the Nasdaq Stock Market and the New York Stock Exchange.

Then the battle-hardened Atticus turned on another exchange. Earlier this year the New York firm and accounts it advises amassed a 9.1 percent stake in Euronext and urged that the Paris-based electronic exchange combine with Deutsche Bsˇrse.

In February, Barakett, who makes his debut on our list of top money earners tied for No. 14, fired off a letter to Arcelor CEO Guy DollZˇ expressing his extreme disappointment that the Luxembourg-based steelmaker, in which Atticus has a 1.3 percent stake, wasn’t paying more attention to a tender offer from Mittal Steel Co., also based in Luxembourg.

Barakett, who holds a BA in economics from Harvard University and an MBA from the Harvard Business School, does not make his rather handsome living just from badgering CEOs. His Atticus Global fund was up a net 22 percent in 2005, and his Atticus European fund — managed by David Slager, who is tied for No. 20 — surged 62 percent. On a capital-weighted basis, Atticus’s funds were up 45 percent, on average. Little surprise, then, that the firm’s assets more than doubled in 2005, to $9.2 billion. That must please Barakett, but it is also gratifying to Atticus vice chairman Nathaniel Rothschild, son of Lord Jacob Rothschild. The younger Rothschild earned about $80 million last year, falling short of the cutoff for our list.

14 - William von Mueffling
Cantillon Capital Management
$200 Million

When William von Mueffling bolted from Lazard Asset Management in January 2003 to start his own firm, Cantillon Capital Management, he made no pretense about his motive: He wanted to earn more money. “This is an eat-what-you-kill business,” he told Alpha last year. “Earn a lot if you succeed, and don’t get paid if you don’t succeed.” The Munich-born investor can hardly complain any longer that his contribution to profits is not being recognized.

Now 38, von Mueffling makes his debut on our list tied for No. 14, having steered the Cantillon World fund to a 15.9 percent net return in 2005 and Cantillon Europe to a 26 percent gain. Remarkably, after only three years in business, Cantillon Capital runs more than $7 billion.

The New York-based firm applies an amalgam of quantitative screens and bottom-up stock selection, with an aggressive overlay of leverage. Von Mueffling looks for companies that have a very high return on equity and low valuation. His strategy draws on what he learned at Lazard, as well as at that hotbed of value investing, Columbia Business School, where he earned an MBA in 1995.

In 2005, von Mueffling benefited from gains on hundreds of positions. He did especially well on energy stocks and in Europe and Asia. A large share of Cantillon’s longer-term success stems from the firm’s heavy exposure to Europe. Although von Mueffling left Germany as a youngster and was raised in New York, he speaks both French and German and feels an affinity for the Continent.

His European bent carries over into his nonwork activities. Von Mueffling is on the board of trustees of the American Academy in Berlin and is the treasurer of the French American Cultural Exchange. An avid collector of black-and-white photographs, he is a board member of the International Center of Photography in New York.

14 - James Pallotta
Tudor Investment Corp.
$200 Million

James Pallotta had a lackluster year in 2005, by his demanding standards. The 48-year-old Boston-based head of U.S. equity for Paul Tudor Jones II’s Tudor Investment Corp. failed to capitalize on the big spike in energy prices and was hurt on health-care-related investments. As a result, Pallotta’s Raptor Global Portfolio had its worst showing in four years — up 8.9 percent, net of fees. Pallotta, who oversees $6.3 billion in Tudor’s Raptor funds, did manage to make a little money on telecommunications, retail and event-driven opportunities. Raptor has returned, on average, 20 percent a year since Pallotta began managing the fund in 1993.

Pallotta’s worst-performing investment last year may have been the Boston Celtics, of which the Beantown native and Northeastern MBA grad is a part owner. The National Basketball Association squad was 33-49 for the 2005–’06 season and missed the playoffs. And this is one investment Pallotta can’t short.

17 - Raymond Dalio
Bridgewater Associates
$190 Million

Institutional investors MOST admire Raymond Dalio for his consistency. Although Westport, Connecticut–based Bridgewater Associates’ Pure Alpha Strategy gained only 3.46 percent last year after fees, the hedge fund’s annualized return since its 1991 inception is a solid, if unspectacular, 13 percent; its worst year out of 15 was a 4 percent loss.

Thanks to his strong institutional following, Dalio was able to double his firm’s hedge fund assets last year. In fact, with $20.9 billion invested in Pure Alpha, Bridgewater was the second-biggest hedge fund firm in the world at the end of 2005. (Goldman, Sachs & Co. was the largest, with just over $21 billion.) Bridgewater, which Dalio founded in 1975 after he was let go by Sanford Weill at brokerage firm CBWL Hayden Stone, manages $150 billion in total assets.

No one is going to confuse the 56-year-old Dalio with George Soros or Julian Robertson Jr. Bridgewater’s academic approach to money management blends proprietary fixed-income, currency, equity and commodities trading strategies into programs tailored for the risk tolerances of its institutional clients, which include foreign governments and central banks. “Only investors who are smarter than the market will be able to reliably provide alpha,” Dalio wrote in a recent letter to investors. “In truth, many hedge funds are packaging up beta and selling it at alpha prices.”

Pure Alpha made money in 2005 by being long commodities, emerging-markets debt and currencies, and short assorted bonds. These gains were offset, however, by a losing short position on the dollar against the yen.

18 - John Griffin
Blue Ridge Capital
$175 Million

Blue Ridge Capital president John Griffin returns to our list of top money earners after a two-year absence. Unlike many hedge fund managers these days, Griffin, 42, isn’t interested in building a huge firm. The former Tiger Management president’s current firm had $3.4 billion under management at the beginning of this year, barely enough to crack the ranks of the 100 biggest hedge funds. His investors, however, probably aren’t complaining, given his 24.2 percent net return in 2005.

Like most Tiger “cubs,” Griffin, who has a BS in finance from the University of Virginia and an MBA from the Stanford Graduate School of Business, specializes in long-short equity investing. Last year one of his biggest positions — and winners — was Mexico-based wireless service provider AmZˇrica M—vil. Fellow Tiger cub Stephen Mandel Jr. of Lone Pine Capital (No. 10 on our list) is also a big investor in AmZˇrica M—vil.

Griffin began his investment career in 1985 as a financial analyst for Morgan Stanley’s merchant banking group. Two years later Julian Robertson Jr. recruited him to Tiger, where he worked until 1996 before leaving to start Blue Ridge in New York. Like his mentor, Griffin devotes time to philanthropy. While at Tiger, Griffin set up the Blue Ridge Foundation, which in recent years has acted as a philanthropic incubator, offering office space, funding, back-office support and management assistance to a small portfolio of new, promising nonprofit organizations. Griffin also spends two months a year in New Zealand, where he has a home on the eastern shore of the North Island, not far from the two golf courses built by his old boss Robertson.

19 - Louis Bacon
Moore Capital Management
$160 Million

For the fourth year out of the past five, almost all of Louis Bacon’s four major funds enjoyed double-digit returns. Last year Moore Global Investments, his $5.3 billion macro fund, was up more than 16 percent; Moore Global Fixed Income Fund climbed 15.6 percent; and Moore Emerging Markets jumped more than 20 percent, all net of New York–based Moore Capital Management’s 3 percent management fee and 25 percent performance fee.

How does Bacon do it? Little is known about how the secretive North Carolinian invests, apart from the fact that he trades everything from currencies to bonds to equities. Nevertheless, Moore Capital’s regulatory filings offer a little insight into Bacon’s methods. The 49-year-old manager likes to use exchange-traded funds to make sector and regional bets. Early last year he had a big position in ETFs that track the MSCI emerging-markets index but scaled back his exposure in the fourth quarter. In the third quarter he had a bearish put position in an energy-oriented ETF, even as many energy hedge funds were losing their bets on long positions.

Bacon has deep hedge fund roots. His stepmother is the sister of the legendary Tiger Management founder Julian Robertson Jr. Raised in Raleigh, Bacon got his BA in American literature at Middlebury College in Vermont, where he is said to have had a special regard for Ernest Hemingway and Nathaniel Hawthorne. Southerner though he is, Bacon has donated to Eliot Spitzer’s New York gubernatorial campaign.

20 - Noam Gottesman
GLG Partners
$150 Million

20 - Pierre Lagrange
GLG Partners
$150 Million

In the late 1980s, Noam Gottesman, Pierre Lagrange and Jonathan Green were at Goldman, Sachs & Co. in London investing money for wealthy private clients. In 1995 the trio decamped en masse for Lehman Brothers, where they started a multistrategy hedge fund. Five years later they packed up their successful fund — Lehman retained a reported 20 percent stake — and used it to start their own investment shop.

Today, GLG is one of the U.K.’s biggest hedge funds, with $15.5 billion under management and 250 employees. Gottesman, born in Israel but raised in the U.S., and Belgium native Lagrange, both 44, run the place along with Emanuel Roman, who was hired from Goldman Sachs last year to serve as the third co-CEO. Green, also 44, retired to Monaco in 2003.

GLG’s 20 portfolios racked up, on average, a 15.5 percent net return last year. The firm invests in everything from convertible arbitrage to credit to commodities. Its long-short U.S., European and Japanese equity portfolios fared well, as did technology, utilities and consumer sector funds.

Gottesman and Lagrange co-manage about half the firm’s assets. Gottesman, who has an honors degree in history and development of science from Columbia University in New York and concentrates on U.S. equities, is the more public partner. Lagrange, the “L” in GLG, manages European equities. He trained at Solvay Business School in Brussels to be an engineer and once worked for Exxon Corp. before ending up at Goldman Sachs.

Lagrange and Gottesman must wish at times that they had joined former partner Green in Monaco, especially now. For the past year GLG has been thrust under a klieg light by British and French regulators’ probing into alleged insider trading at its hedge funds. In January, Philippe Jabre, who ran several of GLG’s strategies and had joined the firm from BNP Paribas, resigned after he and GLG were each fined £750,000 ($1,415,000) by the U.K.’s Financial Services Authority — Jabre for alleged market abuse and violations of market conduct and GLG for failure to adequately supervise him. The Wall Street Journal reported in April that Jabre indicates that he plans to appeal the FSA’s action, although GLG does not.

20 - David Slager
Atticus Capital
$150 Million

Atticus Capital is well represented on this year’s list. The firm’s founder, Timothy Barakett, makes his debut tied for No. 14. David Slager, the star portfolio manager of the $3.8 billion Atticus European fund, also appears for the first time, in a tie for No. 20. Slager, a senior managing director of Atticus, had a heck of a year, racking up a 62 percent return net of fees in 2005.

The New York–based 33-year-old hit it big playing global exchanges, especially Deutsche Bsˇrse, Euronext and Archipelago — that is, the stocks of the markets themselves, not the stocks of the companies listed on them, which didn’t do nearly as well, on average. Slager also fared well in volatile energy shares, especially those of refiners. He benefited, too, from sizable gains in natural- resources stocks. One coup: Atticus coaxed one of its holdings, Phoenix-based copper producer Phelps Dodge Corp., to issue a $900 million special dividend.

Slager, who majored in jurisprudence at Oxford University, seems to have no legal or other qualms about Atticus’s style of activist investing. When the firm effectively forced out Deutsche Bsˇrse CEO Werner Seifert last year, Slager told the London Sunday Times: “We are long-term investors and are experienced in removing management. We are not scared to take this to its conclusion this time.”

Besides running Atticus’s European portfolio, Slager, who honed his demonstrable talents at Goldman, Sachs & Co. in high-stakes proprietary equity arbitrage, serves as vice chairman of the firm (along with Nathaniel Rothschild). Slager joined Atticus in 1998, three years after its launch. He is a big supporter of several Hasidic charities.

24 - Daniel Och
Och-Ziff Capital Management Group
$145 Million

For a hedge fund manager, Daniel Och behaves a lot like a private equity investor. That hardly makes him unique, but more than most, the onetime Goldman, Sachs & Co. risk arbitrageur seems to have crossed the invisible line separating the two disciplines. Of New York–based Och-Ziff Capital Management Group’s $14 billion in assets, more than $2 billion has been dedicated to takeovers and kindred private equity deals.

Last year Och teamed up with hedge funds Citadel Investment Group (see Kenneth Griffin, No. 13) and Perry Capital (whose Richard Perry narrowly fails to qualify for this year’s list) to assist U.S. entrepreneur Malcolm Glazer n gaining control of legendary British football club Manchester United. In September, when NewStar Financial, a Boston commercial finance outfit, formed the NewStar Credit Opportunities Fund, Och-Ziff, already a founding investor in NewStar Financial, chipped in $75 million of equity capital.

Private equity investing, of course, demands as much patience as it does capital. Och’s investors are finding that out. Och-Ziff’s main investing vehicle, the $11.5 billion OZ Master Fund, was up 8.9 percent net of fees in 2005, its worst showing since it lost 1.6 percent in 2002. Seven-year-old OZ Europe, which has $1.6 billion, gained 16 percent net in 2005, and OZ Asia returned a net 14.5 percent.

Och, 45, got a BS in finance from the Wharton School of the University of Pennsylvania and sits on the university’s Undergraduate Executive Board. He also serves on a host of nonprofit boards, including those of the UJA Federation of New York, the American Jewish Committee, the Robin Hood Foundation and New York–Presbyterian Hospital.

25 - William Browder
Hermitage Capital Management
$130 Million

Money can’t buy everything, not even for a hedge fund manager. Just ask William Browder, founder and CEO of Moscow-based Hermitage Capital Management, who makes his debut on our list of the top money earners tied at No. 25. The 42-year-old hedge fund manager has been barred from returning to Russia since November, when immigration officials there revoked his visa. Browder, who says he doesn’t know who is behind his visa difficulties, has set up an office in London, shuttling in members of his Moscow-based team — most of whom are Russian citizens — so he can stay on top of his investments (see page 39).

With $4.3 billion under management at Hermitage, Browder is the biggest, most successful outside investor in Russia. The American-born Browder, who became a British citizen eight years ago, has produced total shareholder returns of 935 percent since he launched his firm in 1996 with financial backing from the late Edmond Safra. In 2005 his flagship Hermitage Fund was up 81.5 percent net of its 2 percent management fee and 20 percent performance fee. Browder profited from the huge run-up in energy prices, as the bulk of the fund is invested in oil and gas stocks.

Much of his success, however, comes from his well-deserved reputation as a shareholder activist. Browder has challenged the business practices of several of Russia’s largest companies, including Gazprom, the natural-gas monopoly; Lukoil, the country’s largest oil operator; and Unified Energy System, which owns and operates the electricity grid. He is credited with shaking up Russian corporate governance laws and winning more rights for minority shareholders.

Before starting Hermitage, Browder was a vice president at Salomon Brothers, where he managed the firm’s investments in Russia. Previously, he had been a management consultant with the Eastern European practice of the Boston Consulting Group in London. He has a BA in economics from the University of Chicago and an MBA from Stanford Graduate School of Business.

25 - Marc Lasry
Avenue Capital Group
$130 Million

For a distressed-debt investor like Avenue Capital Group managing partner Marc Lasry, 2005 must have been a bit distressing. Almost all of his eight funds made only modest gains of 6.5 to 10.5 percent net of fees. The best performers were Lasry’s two European funds: Avenue Europe Investments climbed 10.42 percent, and Avenue Europe International rose 9.86 percent.

Lasry, who along with chief operating officer Sonia Gardner (his sister) founded Avenue in 1995, made an uncharacteristically big bet on U.S. equity in last year’s second quarter, lifting his exposure from a mere $476,000 at the end of March to $3.6 billion by the end of June. He had scaled back by year-end, but his holding still amounted to $1.9 billion spread over 96 different names, with a heavy reliance on calls and puts.

Lasry runs more than $9 billion at New York-based Avenue, including $4 billion in hedge funds. He is said by those familiar with his thinking to be gearing up for an upsurge in corporate-debt defaults in 2006, because of a wave of issues of junk bonds, rising interest rates, climbing oil prices and a weakening dollar. His heavy emphasis on equity is simply a way of buying time.

Lasry, 46, has a BA in history from Clark University in Worcester, Massachusetts, and a JD from New York Law School. The Moroccan-born Lasry and his wife, Cathy, endowed an academic chair at the University of Pennsylvania. The position is intended for a preeminent scholar and teacher whose interests lie in the field of African-American studies. The couple are also big contributors to the Democratic Party.

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