The N.Y. Times is making much today about a new Alpha magazine article on salaries of managers at top hedge funds, but I’m uneasy. While there are hedge fund folks who are (very) highly paid, the idea that the 1/20 comp scheme (1% of assets, plus 20% of upside) at such funds is a recipe for making millions, as the writer suggests, isn’t well grounded in reallity.
The median U.S. hedge fund has something like $30-million under management, which produces $300,000 in management fees. While that might or might not seem like much, it is diddly from which to pay salaries, office expenses, and so on. As one such manager put it to me recently, “We live on dog food — and most dogs get better food.” And woe betide the manager who doesn’t deliver results immediately: Unlike their private equity brethren with five- and seven-year funds, hedge assets can be yanked out (in most cases) tomorrow.
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A “Top 25″ list in a (near) winner-take-all setting with thousands of participants is pretty much guaranteed to mislead most people about the overall setting. Which presumably is the agenda of some makers and reporters of such lists (*cough*NYT*cough*).