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News : International Last Updated: Oct 22, 2009 - 9:32:41 AM


Top earning US Hedge Fund Manager made $3.7bn in 2007 from Subprime Crisis; Top 25 earned average $892m - up from $532m in 2006
By Finfacts Team
Apr 16, 2008 - 7:07:42 AM

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John Paulson
The top earning US hedge fund manager John Paulson earned a record $3.7 billion in 2007 to top Alpha Magazine's annual ranking of the 50 most highly paid hedge fund managers. The Paulson & Co. head overtook George Soros and James Simons, who ranked second and third, at $2.9 billion and $2.8 billion, respectively. The top 25 on the list earned an average $892 million, up from $532 million in 2006.

The magazine says that Paulson rocketed to No. 1 in Alpha's seventh annual survey by shorting the subprime mortgage market - making his money as the market spun downward.

He, Soros, Simons and the others who earned more than $1 billion — Philip Falcone and Kenneth Griffin — led what may well prove to be the greatest display of individual wealth creation in any year in the modern history of finance.

The magazine says that the enormous riches being generated by hedge funds come at a time of extraordinary distress in financial markets, as millions of homeowners face potential foreclosure and the US plunges into recession.

Alpha Magazine says:

  • Five of the managers on this year’s list each made more in 2007 than the $1.2 billion that JPMorgan Chase & Co. agreed to pay for the almost failed 85-year-old Bear Stearns Cos.

  • When the magazine published the inaugural list, in 2002, Soros led the way with $700 million, a showing that this year would have put him at No. 9. Back then it took $30 million to crack the top 25; this year, $360 million.

  • The grand total earned by the top 25 in the 2003 ranking, almost $2.8 billion, was less than what any of the top three managers made this year and less than one fifth of what the top ten made altogether ($16.1 billion).

  • Though the ranking was doubled from 25 to 50 this year, longtime New York–based star managers Mark Kingdon of Kingdon Capital Management and Raj Rajaratnam of Galleon Group both miss the cut, despite each making about $200 million. This year’s minimum: $210 million.

Alpha uses two components to calculate earnings: managers’ share of their firm’s performance and management fees, as well as gains on their own capital. (For multibillionaires like Soros and Simons, the latter can be substantial.) It excludes, however, any proceeds from the sale of a firm or from a public offering, which is more a reflection of managers’ business acumen than of their investment prowess. Still, the magazine says it’s hard to ignore the enormous wealth being generated by such deals. Daniel Och was worth more than $4.5 billion the day after New York–based Och-Ziff Capital Management Group went public last year. And GLG Partners co-founders Noam Gottesman and Pierre Lagrange each made more than $1 billion by engineering an IPO of their London firm last summer through a merger.

  Name Firm Name 2007 Earnings*
1 John Paulson Paulson & Co. $3.7 billion
2 George Soros Soros Fund Management 2.9 billion
3 James Simons Renaissance Technologies Corp. 2.8 billion
4 Philip Falcone Harbinger Capital Partners 1.7 billion
5 Kenneth Griffin Citadel Investment Group 1.5 billion
6 Steven Cohen SAC Capital Advisors 900 million
7 Timothy Barakett Atticus Capital 750 million
8 Stephen Mandel Jr. Lone Pine Capital 710 million
9 John Griffin Blue Ridge Capital 625 million
10 O. Andreas Halvorsen Viking Global Investors 520 million
*Earnings include managers’ shares of fees as well as gains on their own capital.

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