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The world’s 25 best paid hedge fund managers earned a combined $11.62bn last year even as the industry suffered from largely mediocre performance and growing criticism from some of its largest investors.
Hedge fund pay, however, almost halved from a $21.5bn total in 2013 when surging equity markets helped the industry’s 25 highest earners rake in earnings roughly equivalent to the gross domestic product of Jamaica.
Ken Griffin, the founder of the Chicago-based Citadel hedge fund that recently hired former US Federal Reserve chairman Ben Bernanke as an adviser, came top of the list for 2014, taking home $1.3bn, according to an annual survey conducted by Institutional Investor’s Alpha.
James Simons, the septuagenarian mathematician and code breaker whose Renaissance Technologies has been one of the best preforming hedge funds over three decades, came in at number two on the list, earning $1.2bn.
Ray Dalio, founder of Bridgewater, the world’s largest hedge fund by assets, was placed third with earnings of $1.1bn, and the outspoken activist Bill Ackman, who has been waging an aggressive battle against the US company Herbalife, was ranked fourth with a $950m pay packet.
The outsized earnings for the hedge fund industry’s leading figures are likely to add spice to existing tensions between managers and a small but influential group of public pension funds who have spoken out against the industry’s high costs and lacklustre investment performance in recent years.
Hedge funds typically adopt a fee structure known as “two and 20”, or 2 per cent of all assets under management and 20 per cent of profits. This allows managers to earn large sums regardless of their fund’s performance based on the amounts of assets they manage, as well as taking a fifth of any investment gains they make.
Over the weekend Warren Buffett, one of the world’s best-known investors, took aim at hedge fund performance and pay, pointing to a bet he had made in 2008 against another hedge fund that a simple index tracking fund could beat the industry’s shrewdest stock pickers.
At the annual meeting of Mr Buffett’s Berkshire Hathaway he said the tracker fund was up against the portfolio of funds assembled by hedge fund manager Protégé Partners by 63.5 per cent to 19.6 per cent.
The average hedge fund returned about 3 per cent in 2014, 9 per cent in 2013, and 6 per cent in 2012, according to the data provider HFR. In all these years these numbers underperformed the US S&P 500 index, although many in the hedge fund industry argue it is unfair to make a direct comparison between the two.
In January, Europe’s second-largest public pension fund axed its entire €4bn hedge fund portfolio after it was left disappointed by its cost, complexity and low returns.
The fund, Holland’s €156bn Dutch healthcare workers’ pension fund PFZW, took the rare step of directly attacking the high pay of hedge fund managers, criticising “the high remuneration in the hedge fund sector and the often limited concern for society and the environment”.
Last year Calpers, the largest US state pension fund, said it was pulling out of its hedge fund investments, arguing that its $4bn portfolio was no longer appropriate for its investment aims.
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