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Hedge Fund Manager: A Quick Look at the World’s Best Paid Job

Updated on June 2, 2013

Too Much

Are hedge fund managers overpaid?

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Show me the money

There really is quite a lot to show. Consider that the highest salary paid to a hedge fund manager by their fund was $4,900,000,000 which was made by John Paulson in 2010. To put this number in perspective the average Wal-Mart employee would have to work 136,000 years to earn that.

Paulson is not alone in the billion a year category. Other managers such as James Simons, George Soros, Phillip Falcone and T. Boone Pickens have all earned nine figures in one year. So, there really is mega bucks to be made in hedge funds.


Top 3 Earners of 2012

Manager
Fund
Salary
Ray Dilo
Bridgewater Associates
£1.97 Billion
James Simons
Renaissance Technologies
£1.38 Billion
Carl Ichan
Ichan Capital Management
£1.31 Billion

What do Hedge Funds Actually do?

Firstly, they are very complicated. If they were simple everyone would be running a hedge fund.

In their simplest form they take investors money and invest it for a fee. They are called “hedge” funds because they are set up (usually) so that they can make money if markets go up or down. They typically take on more risk than other investments and have access to more complex financial instruments. Also, importantly, they are able to borrow money from banks with which to invest which magnifies there potential returns (this is called leverage).


Worlds Richest Hedge Fund Manager

Soros has given the vast majority of his wealth away. He also predicted the financial crash of 2008.
Soros has given the vast majority of his wealth away. He also predicted the financial crash of 2008. | Source

How do they Make so Much Money?

Simply: they charge very big fees. Typically a hedge fund manager will take 2% of the money in the fund each year and 20% of all the profits. So, if you run a big fund which makes big profits you get insane amounts of money. Considering that the assets invested globally in hedge funds is around $2.1 trillion dollars (in 2012) there is plenty cash from which managers can deduct fees.


Further Reading

When Genius Failed: The Rise and Fall of Long-Term Capital Management
When Genius Failed: The Rise and Fall of Long-Term Capital Management

Important warnings about how badly things can go wrong and a reminder about how risky the funds really are.

 
The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History
The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History

Want to know how John Paulson made his insane salary? This book explains it in detail.

 

How do you become a hedge fund manager?

Again, it’s not easy because if it was everyone would be doing it. The steps required to becoming a hedge fund manager are:

  1. Become a financial wizard (or make people think that you are one)
  2. Convince lots of people to give you huge amounts of money to invest

That’s basically it. You just need to be very smart and have a lot of money to move. A typical way hedge fund managers raise money is by working for an investment bank (e.g. Goldman Sachs, JP Morgan, Citi etc) and acquiring very rich contacts.

Furthermore, hedge fund managers tend to be intense and highly motivated people. Most managers have had to stomach huge losses and set backs on their way to the top. Could you handle managing billions of dollars of other people’s money (and lots of your own too) during the financial crash? Can you handle that level of stress? Also, if you’re starting work at 5AM it probably means that your late.


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