What would you say is a fair amount to pay a savvy, sophisticated hedge fund manager for taking a pile of your money and making it smaller?
Most hedge fund managers are paid both a percentage of the profits they make from investing your money, and a percentage of the total assets that they manage each year. If you are able to quickly grasp the fact that this arrangement enables hedge fund managers to get paid a lot of money each year just for having a lot of money to invest even if they lose money for their investors, then you may “have what it takes” to be a hedge fund manager, or small-time con man, depending upon the circumstances of your birth.
According to a new story in Chief Investment Officer magazine, the hedge fund industry as a whole lost about 1.6% in the year ending in September. What, do you think, would be a “fair” average compensation for these money management wizards? I would suggest that given the exorbitant amounts that hedge fund managers can make in good years, in years that hedge funds lose their investors money, a fair payment for them would be $0. (Even if this were the case I assure you we would still have thousands and thousands of people desperate to be hedge fund managers!)
In fact, though, CIO reports that “Annual compensation for managers of mid-sized portfolios—including base salary and estimated year-end bonuses—was projected to average $950,000, a decline of 8% to 11%.” To be clear, these are not the big hedge fund managers, who make much more; these are just the goons managing a few billion, essentially the struggling middle class of hedge fund workers.
A million bucks a year to lose money. From Wall Street to Main Street, everyone is struggling these days.