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Top hedge fund managers still making bank despite the market

Kenneth Griffin tied for the top spot of highest-earning hedge fund managers this year. Larry Busacca/Getty Images for The New York Times

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Despite a lot of volatility in the markets and an overall downturn for hedge funds, some hedge fund managers are still taking home huge paychecks. A report out Tuesday from the magazine Institutional Investor’s Alpha finds the two highest-earning hedge fund managers took home $1.7 billion apiece in 2015, and the 25 highest earners brought in a combined $12.94 billion in fees and returns on their own money invested in their funds.

Still, that total number is down almost half from the record-breaking earnings in 2009, when hedge funds cashed in on their Great Recession bets.

“The last few years have been difficult for hedge fund managers,” said Institutional Investor’s editor, Michael Peltz. Managers are facing tighter competition, volatility in the markets, and more scrutiny from regulators.

Alicia Syrett with Pantegrion Capital said hedge fund managers are facing a tough market, at least relatively.

“A lot of hedge fund managers have really suffered in the first quarter. There are number of reasons for that: the change in oil prices, economic uncertainty, Brexit, EU,” she said.

As for the top earners, “they are absolutely the best of the best. They have outperformed market cycle after market cycle. And because of their outperformance in years past, they have accumulated a great deal of assets, they have longstanding relationships with institutional clients, and even in one or two off years, their management fees on their assets enable them to survive.”

Management fees on hedge funds remain 2 percent of investments and 20 percent of returns, meaning managers make 2 percent even on funds that don’t bring in returns. Five of the top earners in 2015 managed funds that actually lost money. Syrett said that every time returns are disappointing, the fees are up for discussion.

“Everyone seems to argue that maybe the next year, there may be pushback…and there never really seems to be.”

As for what’s next, Peltz said what stood out to him from the 2015 report is that about half of the top earners used computer-generated investment strategies. He attributes the shift to both improvements in the technology and increasing investor confidence in the use of big data and cloud computing. David Shaw, a longtime quantitative investor, came in at number six with $750 million in earnings; another computer-driven manager, James Simons, tied with Kenneth Griffin for the top spot with $1.7 billion.

“David Shaw and Jim Simons have been on the list for much of the history of the list,” Peltz said. “But you haven’t seen as many other quantitative managers on in the past as this year.”

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