How do hedge fund managers become billionaires?

They pay managers handsomely. So if the fund manages $1 billion and it generates a 25% return ($250 million), the manager is paid 2% of $1 billion ($20 million), plus 20% of the returns exceeding a 5% hurdle, or $40 million. This is how successful managers of big hedge funds become billionaires.

Key Takeaways

Hedge funds make money as part of a fee structure paid by fund investors based on assets under management (AUM). Funds typically receive a flat fee plus a percentage of positive returns that exceed some benchmark or hurdle rate.

There are over 10,000 hedge funds in the world, plus probably another 10,000 that have closed. Some of them have multiple managers. So there are perhaps 25,000 people in the world today who can claim to be or have been hedge fund managers, and 46 of them are billionaires.

In their list, Forbes ahs mentioned that the twenty richest hedge fund billionaires list are worth $245 billion–up $4 billion from a year ago. 'But their individual returns have varied dramatically', Forbes mentions. The publication noted that they have counted 47 hedge fund billionaires.

Hedge funds make money by charging a management fee and a percentage of profits. The typical fee structure is 2 and 20, meaning a 2% fee on assets under management and 20% of profits, sometimes above a high water mark. For example, let's say a hedge fund manages $1 billion in assets. It will earn $20 million in fees.

The top earner was Ken Griffin, founder of multistrategy giant Citadel. He personally made $4.1 billion — the most any hedge fund manager has ever earned in the history of the Rich List.

Hedge funds help protect investors from market volatility and downturns better than other investment benchmarks. towards fixed income assets to produce reliable returns and meet financial obligations.

BlackRock manages US$38bn across a broad range of hedge fund strategies. With over 20 years of proven experience, the depth and breadth of our platform has evolved into a comprehensive toolkit of 30+ strategies.

Because they are not as regulated as mutual funds or traditional financial advisors, hedge funds are only accessible to sophisticated investors. These so-called accredited investors are high net worth individuals or organizations and are presumed to understand the unique risks associated with hedge funds.

Stocks Elon Musk doesn't buy

Musk isn't a hedge fund manager and isn't required to disclose relatively small investments.

He then joined D. E. Shaw & Co, a newly created hedge fund with a strong emphasis on mathematical modelling from 1990 until 1994. Bezos became D. E. Shaw's fourth senior vice-president by age 30.

Phil Falcone

However, life wasn't always this way for the hedge fund titan. Falcone, the youngest of nine children, grew up poor in a small home in Chisholm, Minnesota. His father was a utility superintendent and his mother worked at a factory.

Employees are often required to sign stringent non-compete agreements, ostensibly to protect trade secrets. And even basic information like fund returns is not commonly reported publicly. The conventional wisdom is that this lack of transparency is a trade-off for better performance.

If you are at a fund like a multimanager hedge fund where every day you either make money or you don't and your investment horizon is very short, the job will be extremely stressful.

Long and stressful days

The day for hedge fund managers is very long and full of stressful hours. The end of the market day doesn't necessarily mean that they are done for the day. Many hedge fund managers run positions in overnight markets so they will need to monitor those trades, often late into the night.

Citadel's performance wasn't about one trade. Its flagship hedge fund gained 38% last year by trading everything from equities to commodities, Bloomberg reported earlier this month. The firm made money in each of its five core strategies, which also include fixed income and macro, quant and credit.

Ken Griffin, the hedge fund billionaire, is simply one of the biggest names in finance. His Citadel hedge fund had a record-breaking $16 billion return last year, when many were wrong-footed by a brutal bear market. Now A.I. has the market soaring, but Griffin is again twisting where others are turning.

Hedge fund managers often have a master's degree or even a Ph. D. in finance, mathematics, economics, financial engineering, quantitative finance, programming, marketing, or business administration. Others have advanced degrees in a specialty such as engineering or accounting.

In short, Warren Buffett is not a hedge fund manager, and Berkshire Hathaway is not a hedge fund. Buffett is one of the few billionaires who amassed a fortune by building a successful business and managing a stock portfolio simultaneously.

Based on our data, it appears that the optimal compensation range for a Chief Executive Officer at Hedge Fund Group is between $508,173 and $841,009, with an average salary of $665,862.

How to start working for a hedge fund

The Bottom Line. Hedge fund investment is considered a risky alternative investment choice and requires a high minimum investment or net worth from accredited investors. Hedge fund strategies include investment in debt and equity securities, commodities, currencies, derivatives, and real estate.

Because they are not as regulated as mutual funds or traditional financial advisors, hedge funds are only accessible to sophisticated investors. These so-called accredited investors are high net worth individuals or organizations and are presumed to understand the unique risks associated with hedge funds.

The minimum amount of investable assets required to invest in one of Citadel's funds is $10 million. The firm and its advisors may waive these minimums at their discretion, though.

In the world's largest Wall Street derby, Vanguard Group Inc. for the first time won the institutional asset management race by a nose in 2022, beating out BlackRock Inc. for most institutional assets under management worldwide.

Pfizer's top shareholders: Vanguard, BlackRock and State Street. “They do own a large portion of the publicly traded shares of those companies, so that's true,” says Daniel Sotiroff, senior manager research analyst for Morningstar Research Services.