In USA Today (courtesy of the Hampton Inn), I read an article in the money section about hedge funds managers payroll. Would you believe that the top 50 people earned $29 billion in 2007. Five earned more than a billion each while John Paulson of Paulson & Co earned $3.7 billion. George Soros earned $2.9 billion and James Simons earned $2.8 billion.
Maybe I should be saying “took home” rather than “earned.” It’s hard to imagine what you personally would have to do to actually “earn” almost $4 billion.
Hedge funds have a unique fee structure. They charge a percentage of the total investment you make plus a percentage of the profits. The “usual” is 2 percent of the initial investment and 20 percent of the profit. Some large, profitable funds have been able to charge as much as 5 percent of the initial investment and a whopping 40 percent of the profits.
Imagine rolling over $100,000 from an old 401k into an IRA based in a mutual fund. Bam–$2,000 gone right off the top. Then your fund manager hits the jackpot and gets you a 17 percent return on your remaining $98,000 but charges you that 20 percent fee. Your take? $11,328.