Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Hedge Fund Pay That Will Make Your Head Hurt

I'm about to tell you something that could make you upset. You might want to sit down for this one. Finish chewing before you continue so you don't choke. If there are kids in the room, it's time for earmuffs. This will shock you:

There are people in this country who will make more money during your lunch break than you might make over the next several years.

It's true
In the glamorous world of hedge funds, 2007 marked a record year of management compensation far beyond most people's comprehension. While Apple (Nasdaq: AAPL  ) CEO Steve Jobs and the two Google (Nasdaq: GOOG  ) co-founders command simple $1 salaries, some high-flying hedge fund mangers are a tad less modest, pulling down up to $10 million every single day.

The five highest paid hedge fund managers of 2007


2007 Pay

John Paulson

$3.7 billion

George Soros

$2.9 billion

James Simons

$2.8 billion

Philip Falcone

$1.7 billion

Ken Griffin

$1.5 billion

*Source: Alpha Magazine.

Your eyes aren't deceiving you: The top five hedge fund managers took home a combined $12.6 billion in 2007. That isn't their net worth; it was their annual pay.

Let's break down how much $12.6 billion is:

  • Enough money to cover all government expenditures -- Social Security, Medicare, education, defense, transportation, homeland security, interest payments on debt, state, local, everything -- for about 22 hours.
  • Enough money to give nearly $15 to each of the 852 million people (per the U.N. in 2006) worldwide who don't get enough food to sustain a healthy life.
  • Enough to write a $6,300 check for each of the two million Americans staring at foreclosure this year.
  • Twice as much as Coca-Cola (NYSE: KO  ) made in 2007.

How on Earth did they do it? While hedge funds are notoriously secretive about their holdings, we do know a few tidbits. John Paulson, who took home the biggest bounty, correctly bet that the value of mortgage-related products would fall in value, sending one of his funds up a staggering 590% in 2007. Ken Griffin, who heads Chicago-based Citadel Investment Group, made a widely followed investment in troubled online broker E*Trade (NYSE: ETFC  ) late last year. And Jim Simons, an MIT graduate with a PhD in math, used the market's instability to score a 73% return in one of his computer-driven quantitative funds during 2007.

Welcome to the good life
All this talk about billion-dollar paydays begs the question, what do you do with all that cash? With such staggering wealth, giving away money for charitable purposes becomes a standard affair. Soros, for example, has donated more than $4 billion during his lifetime, according to PBS. With Microsoft's (Nasdaq: MSFT  ) Bill Gates and Berkshire Hathaway (NYSE: BRK-A  ) chief Warren Buffett joining forces to grow the Bill and Melinda Gates foundation to $38.7 billion in assets at the end of 2007, philanthropy among the world's richest might be seen as more in vogue.

But yes, of course, with incredible pay comes an equally impressive lifestyle. A recent article in the Wall Street Journal reported on a study of 188 hedge fund managers in which they were asked how much they spent over the past year on specific items. When they spend, they spend big; Those who spent money on a specific category dropped an average of $4 million on art, $582,000 on jewelry, $318,000 on watches, $135,200 on spa services, and $94,000 entertaining friends (congrats if you're one of them). Maybe money can't buy happiness, but apparently it can buy a darn good back massage.

Final foolish thoughts
It's important to remember these guys are the creme de la creme of the money management world. Unlike some CEOs who can leave their company in peril and walk away with a gazillion-dollar golden parachute, hedge fund mangers only make the big bucks when their clients are rewarded with equally impressive returns.

Nevertheless, the fact that anyone can make such an insane amount of money in one year highlights what might be a disturbing trend: The amount of prosperity that is solely reliant on the financial market is tremendously large. When that much power is placed in the hands of a few people, even a slight misstep can send the entire market into a tailspin.

Could one fund's actions really harm the entire financial system? You bet, it has happened before.

Now, if you'll excuse me, I have to find out why none of my friends has spent $94,000 entertaining me in the past year.

Read/Post Comments (1) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 28, 2008, at 4:20 PM, mtomarket wrote:

    Though you may never make the pay of the largest hedge fund managers, now is actually a good time to get your foot in the hedge fund door by getting an internship. You can use recruiters, or you can contact hedge funds directly by getting a hedge fund list at

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 628309, ~/Articles/ArticleHandler.aspx, 5/26/2016 1:00:16 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 3 hours ago Sponsored by:
DOW 17,851.51 145.46 0.82%
S&P 500 2,090.54 14.48 0.70%
NASD 4,894.89 33.84 0.70%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

5/25/2016 4:00 PM
AAPL $99.62 Up +1.72 +1.76%
Apple CAPS Rating: ****
GOOGL $738.10 Up +5.07 +0.69%
Alphabet (A shares… CAPS Rating: *****
KO $44.38 Up +0.01 +0.02%
Coca-Cola CAPS Rating: ****
MSFT $52.12 Up +0.53 +1.03%
Microsoft CAPS Rating: ****