The industry may be hurting, but its chiefs are pulling in big paychecks.
It’s no secret that 2015 wasn’t exactly a banner year for hedge funds, but that didn’t stop some fund managers from bringing home salaries that added up to more than 50 times what top banking executives earned. While federal regulations reeled in the earnings of banking executives, hedge fund managers continued to pull in millions and more despite turbulence in the industry.
Five of the country’s highest paid hedge fund managers earned more than $1 billion each in 2015, according to the Institutional Investor’s Alpha annual rankings. Citadel’s Kenneth Griffin and Renaissance Technologies’ James Simons both raked in $1.7 billion. Raymond Dalio of Bridgewater Associates and David Tepper of Appaloosa Management both earned $1.4 billion in 2015. Collectively, the top 25 best-paid hedge fund managers brought home $12.94 billion, according to the report.
Those earnings came despite market instability that was so tumultuous for some that Daniel S. Loeb, Third Point’s manager, called it a “hedge fund killing field.” Indeed, some hedge funds sputtered themselves into nonexistence while others simply shuttered their doors. Even the biggest names in the hedge fund industry weathered the loss of billions in investor dollars.
The Alpha pay rankings have climbed tremendously in recent years as the industry has ballooned in value and number of players. In 2001, the industry on the whole had an estimated worth of $539 billion. By 2015, it had swelled to an estimated $2.9 trillion. That ballooning has resulted in the spinoff effect of growing salaries for the industry’s leaders.
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Whereas executive pay in the banking industry faces strong regulatory oversight, with the potential for even more restrictions on the horizon, hedge fund and asset managers mostly have been excluded from government requirements meant to curb risky banking behaviors and executive pay. At present, Wall Street bankers see deferment of bonuses for three years to ensure executive actions don’t hurt the institution over the long haul. A new proposal would make that deferment four years, according to the Wall Street Journal.
While colleagues in the banking industry have seen their pay regulated by performance requirements, hedge fund managers have been able to rake in massive salaries despite industry losses. Their pay is often based on fund size, rather than performance alone. That $12.94 billion in earnings for the top hedge fund managers, for example, came even as the industry faced big losses in earnings and clients in 2015.
The meager performance of 2015, some say, may be a bellwether signaling the end of the hedge funds’ golden age. With an estimated 10,046 global hedge funds competing for business, many managers are walking the same paths to produce returns. In some cases this has lowered potential returns while driving spreads downward. Low interest rates have compounded troubles for the industry, while some investors are calling for lower fee structures and others simply are putting their assets into lower-cost, lower-risk ventures.
The continued investor exodus out of hedge funds in 2016 has been telling. In the first three months of the year, it is estimated that $15.1 billion has been pulled out of hedge funds by investors, according to data tracker HFR.
“When you have too much capital chasing the same ideas and deals, it’s going to narrow the return,” explained Bel Air Investment Advisors’ Darell Krasnoff in a Fortune article.
