Down year fails to dull hedge fund managers’ Midas touch

The financial crisis may have turned much of Wall Street’s wealth into dross,but a select group of hedge fund managers...

Written by New York Times | New Delhi | Published:March 26, 2009 12:44 am

The financial crisis may have turned much of Wall Street’s wealth into dross,but a select group of hedge fund managers has managed to maintain a touch that might make King Midas blush.

As major markets and economies careened downward last year,25 top managers reaped a total of $11.6 billion in pay by trading above the pain in the markets,according to an annual ranking of top hedge fund earners by Institutional Investor’s Alpha magazine.

James H Simons,a former math professor who has made billions for the hedge fund Renaissance Technologies,earned $2.5 billion running computer-driven trading strategies. John A Paulson,who rode to riches by betting against the housing market,came in second with reported gains of $2 billion. And George Soros,also a perennial name on the rich list of secretive moneymakers,pulled in $1.1 billion.

Of course,their earnings were not unscathed by the extensive shakeout in the markets. In a year when losses were recorded at two of every three hedge funds,pay for many of these managers was down by several million,and the overall pool of earnings was about half the $22.5 billion the top 25 earned in 2007. The managers’ compensation,which was breathtaking in the best of times,is eye-popping after a year when hedge funds lost 18 per cent on average,and investors withdrew money en masse.

Government scrutiny,over Wall Street pay and the role institutions play in the financial markets,is also mounting. Hedge funds are facing proposals for new taxes on their gains,and on Tuesday,Treasury secretary Timothy Geithner said he would seek greater power to regulate hedge funds.

Some disputed Alpha’s calculations,which are estimates that include the increase in value of personal investments the managers made in their funds. But none offered different values for their bonuses.

To make the cut this year,a hedge fund hotshot needed to earn $75 million,down sharply from the $360-million cutoff for 2007’s top 25. Still,amid the financial shakeout,the combined pay of the top 25 managers beat every year before 2006.

“The golden age for hedge funds is gone,but it’s still three times more lucrative than working at a mutual fund and most other places on Wall Street,” said Robert Sloan of S3 Partners,a hedge fund risk management firm. “But this shouldn’t pop up on the greed meter. They made money. That’s what they’re supposed to.”

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