Hedge Fund Owner Salaries Soar As Performance Sinks

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Hedge funds have always been controversial, but today they are in the news again for the extraordinary salaries and bonuses given to the top managers but also because they have the ability to roil and destabilize markets.

This is complicated because hedge funds enjoy a special status: they pay less in taxes than other corporations and the benefits of these tax loopholes mean less money paid into the US Treasury. This means taxpayers are assuming the tax burden of receiving less federal expenditures that the top hedge fund managers enjoy as profits. This loophole benefits hedge funds, private equity funds, and real estate developers.  All of these investment sectors have lousy reputations and manipulate public opinion because they claim they create jobs when they do just the opposite.

The easiest way to curtail hedge fund abuses is to close this tax loophole, known as the carried interest loophole.  This article explains the carried interest tax benefit in greater detail.

Hedge Funds Can Manipulate Markets Without Penalties

In the meantime, the video above from 2006 featuring former hedge fund manager Jim Cramer gives some great insights into how hedge funds manipulate markets, regulators, and other investors to various degrees.

Here is an article from the New York Times’ DealBook that presents the latest roundup of hedge fund owners’ salaries, and their funds’ performance.  In some cases, hedge fund managers make huge salaries even when their hedge funds underperformed the S&P 500 Index for the same period. This keeps the old debate about the benefits of low-cost passive management versus the high-performance claims made by hedge funds that they are the smartest people in the room.  The facts below show this is not the case.

The good news for average investors is that low-cost passive index and ETF investing is the best path for long-term, low-risk gains. Avoid the hype about investing in SPACS and IPOS being pushed by second-tier financial websites and low- or no-commission brokerage firms. Being a day trader is just another way of saying you don’t have a job.

Source: NYT, The Dealbook

“Billion-Dollar Paydays in a Pandemic, The Dealbook, Feb. 2, 2021

“The top 25 hedge fund managers earned $32 billion last year, according to Institutional Investor’s latest rankings.

“Last year, the top 25 hedge fund managers earned $32 billion even as the economy crashed and markets wobbled. Overall, hedge funds returned 11.6 percent last year, according to Hedge Fund Research, their best performance in a decade but not enough to keep pace with the S&P 500, which was up 16 percent.
“It may not be seemly, but it remains fact,” the magazine’s editors wrote.
“Here are the top earners, according to the list:
  • Izzy Englander of Millennium Management, who earned an estimated $3.8 billion and whose flagship fund produced a 26 percent return.
  • Jim Simons of Renaissance Technologies, who earned $2.6 billion and whose flagship generated a 76 percent return (but whose fund open to outside investors lost big).
  • Chase Coleman of Tiger Global Management, who earned $2.5 billion and whose top fund returned 48 percent.
  • Ken Griffin of Citadel, who earned $1.8 billion and whose main fund returned 24 percent. (The firm has made headlines for other reasons, too.)
  • Steve Cohen of Point72 Asset Management and David Tepper of Appaloosa Management both earned an estimated $1.7 billion.
  • The rest of the best: Philippe Laffont of Coatue Management ($1.6 billion), Andreas Halvorsen of Viking Global Investors and Scott Shleifer of Tiger Global (both $1.5 billion), and Bill Ackman of Pershing Square Capital Management ($1.4 billion).”

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