“Compensation for the highest-paid U.S. hedge-fund managers plunged 35 percent in 2011 to $14.4 billion after the European sovereign debt crisis pushed the industry to its second-worst year ever,” reports Bloomberg.
While hedge funds posted an average loss of over 5% last year, the average pay has declined even more sharply. “Average pay for the 25 top earners was $576 million last year, down from $883 million in 2010, according to an annual ranking published by AR Magazine. In 2009, the figure stood at $1.1 billion,” writes Bloomberg.
Here are the top six earning hedge fund managers:
1. The top paid earner on the list was Ray Dalio. His Bridgewater Associates had a fund that returned 25% through the end of November, netting Dalio roughly $3.9 billion. Dalio beat the odds by using a macro strategy, focused on economic trends. The fund “profited last year by predicting global economic headwinds would trigger a flight by other investors to safer assets such as U.S. Treasuries and German bunds.”
2. Billionaire Carl Icahn came in second. He made an estimated $2.5 billion last year through his Icahn Capital. Bloomberg reports, “Icahn, who returned all outside money in his hedge funds to clients last April, profited from his investment in El Paso Corp. after Kinder Morgan Inc. agreed to buy the natural-gas pipeline company.” Icahn returned 35% in 2011.
3. Jim Simons of Renaissance Technologies ranked third after earning $2.1 billion in 2011. The fund was up almost 35% through December 23rd. Simons uses complex algorithms to exploit even the smallest inefficiencies in the market. One of his funds, the Medallion Fund, takes that philosophy to an entirely new level by employing high frequency trading, executing trades in a matter of seconds sometimes.
4. Hedge fund manager Ken Griffin of Citadel LLC came in fourth with an estimated pay of $700 million. Griffin uses a combination of advanced computer code and complex financial algorithms to make his call. Also in 2011, Griffin cleared the high water mark after having had sustained major losses during the financial crises. He ended up with returns over 20% last year.
5. Steve Cohen was fifth. He earned an estimated $585 million last year from his hedge fund, SAC Capital. The flagship fund was up roughly 8% through the end of November. Cohen uses a combination of fundamental and quantitative analysis to make his picks. Last year may not have been stellar but Cohen has an enviable track record, returning nearly 30% over the past 20 years.