Thursday, June 01, 2006

Momma MAKE Your Babies Grow Up To Be Hedge Fund Managers.....

Hedge Funds. When I say the words most eyes glaze over like I'm speaking French-Canadian. Hedge Funds in general refer to private investment funds which use unconventional strategies to achieve above average returns (in theory).

Where Hedge Funds really excel is at paying themselves. While a traditional mutual fund might struggle to get you to agree to a 1% fee, hedge funds have convinced the world that their brilliant investing style warrants a 2-5% management fee and 20%-40% of all gains generated!!

In the current market (2003 to present) this has made many of the top managers rich and look like geniuses far beyond their skill level.

According to an article in Alpha Magazine in 2005, the SALARY of the top hedge fund managers ranged from a paltry $130 million (there was actually a tie for 25th place) to a whopping $1.5 billion!!

The next time your kids are foaming at the mouth over how much money Jay-Z or Eminem made last year (I think they were both under $30 million) point out that the 26th best math geek on Wall Street make $130 million last year and see if that jumpstarts their interest in algebra.

I can't defend these pay packages. For the most part these people are being paid well for being in the right place at the right time. The real value will come in 2007-09 if they can continue to post 20% returns for investors in a weak market.

Congratulations to all those that made the list and to those that didn't, well that new Gulfstream G5 will just have to wait another year.


Anonymous said...

I was reading that it is hard to get into Hedge funds. Is there an easy way to trade Hedge funds without having a large cash flow?

The Artful Blogger said...

There is no market today in hedge funds. They are for the most part private funds managed for institutions and very sophisticated (read: Rich) investors. I read that someone was trying to open up a hedge fund with a $10k or $25k minimum, but I'm not sure that would work.

Most of my most recent experience has been with hedge funds and the volatility is mind-numbing for the average investor. I could lose 50% in a month and be back up 200% a month later.

Most hedge fund managers are not worth their salaries - a few, a very few are worth every penny and then some. Thx for the question.

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