Tags: Hedge | Fund | Managers | Paychecks

Hedge Fund Managers: Big Paychecks, Small Returns

By Michelle Smith   |   Sunday, 21 Apr 2013 10:57 AM

Although hedge fund performance in 2012 was not so remarkable, fund manager earnings followed a different story line. Collectively, the 25 highest earning managers raked in $14.14 billion in 2012, according to Institutional Investors Alpha (IIA).

IIA data shows that Appaloosa Management's David Tepper topped the 2012 Rich List with earnings of $2.2 billion.

He was one of four hedge fund managers whose paychecks were north of $1 billion.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

Steven Cohen of SAC Capital Advisors came in third with $1.4 billion in earnings. Last year an insider trading investigation and the threat of civil charges against the firm prompted Cohen to host a conference call. Forbes said Cohen tried to calm nervous investors and convince them not to bail from the fund.

But the big hedge fund story of 2012 was not insider trading, Forbes staffer Nathan Vardi wrote. He deemed lousy investment returns to be a far bigger crime, and he said many hedge funds were guilty.

In 2012, the average hedge fund returned just 6.2 percent, according to data from Hedge Fund Research cited by CNN Money. By contrast the S&P 500 gained 13 percent.

Last year was not the first time investors paid for poor performance from hedge fund managers, according to Vardi. Rather, it was the second year dumb unmanaged mutual funds that simply track the U.S. stock market have creamed hedge funds, he wrote.

With billions paid out to the fund managers, it may not seem that compensation reflects that poor track record, but assessment of past years suggest that it does. Earnings for the top 25 managers in 2012 was the lowest rate of pay since 2008, said CNN Money.

IIA notes that the Rich List earnings calculations are based on the manager's own capital that is invested in the fund and his or her share of fees.

With strong stock market gains, investments in the likes of Apple, Liberty Global, Priceline.com, Trip Advisor and Yahoo helped many of the top performers, said IIA.

Two of the top 25 qualified despite the fact that their firms were single digit gainers last year. IIA said Millennium Management's Israel Englander and Tudor Investment Corp’s Paul Tudor Jones II only made the cut because they had a substantial amount of personal wealth invested in their funds.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

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Although hedge fund performance in 2012 was not so remarkable, fund managers' earnings followed a different story line.

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