Top hedge fund honcho made $1.5 billion last year
Is James Simons really worth $1.5 billion a year? Well, hedge fund investors seem to think so. That's what they're paying him, according to closely watched compensation rankings just released by Institutional Investor's Alpha magazine.
Simons tops the 2005 list of best-paid hedge fund managers, a veritable who's who of trading titans. Oil and gas icon T. Boone Pickens Jr. comes in at No. 2, nipping Simons's heels at $1.4 billion. He is followed by George Soros, the currency trader and Democratic Party agitator known as the man who "broke the Bank of England." He weighs in this year with $840 million in pay.
Not everyone is doing so well. Last year's top dog, Edward S. Lambert, whose winning plays include the acquisition of Sears, Roebuck, fell to sixth place, scraping by on $425 million after pulling in $1 billion in 2004.
Still, Lambert remained well within the realm of top earners. Hedge fund managers had to take away at least $130 million just to make the list.
But the question remains. Are these hedge fund managers really worth that kind of pay? Or, as the old saw goes, are these loosely regulated investment pools just compensation schemes masquerading as an asset class? When investors are netting a 29.5 percent return, as Simons's $5.3 billion Medallion fund provided last year, paying a 5 percent management fee and 44 percent of gains may seem reasonable.
But six of the managers, including one who took home $400 million, gave investors returns that failed to break the single digits. And, don't forget, these are the cream of the crop. Just think how dismal returns might be among many of the nearly 8,000 other hedge funds now trolling the market for an edge–and taking, on average, a 2 percent money management fee and 20 percent of any gains.
Here's a hint. None of the hedge fund benchmarks tracked by Dow Jones are up over 6.3 percent so far this year, with most languishing around the 2.2 to 3.6 percent range. Meanwhile, the Dow Jones industrial average has returned 4.61 percent and the Russell 2000 has returned over 13 percent. Hedge fund managers may be worth every penny. But the continuing rise in hedge fund pay could be more a function of the billions being plowed into them on a hope and a dream than the actual performance of the funds themselves.
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