The Rich List | AR: Absolute Return - Alpha

The Rich List

By Stephen Taub

Call it the year of the management fee. In 2011 no fewer than 11 individuals garnered a spot on AR’s 11th annual Rich List ranking of the 25 top-earning hedge fund managers despite delivering only single-digit investment gains in their funds for the year. They can thank their firms’ sizable coffers: Although these managers couldn’t bank much from the 20 percent-plus performance fees for which hedge funds are famous, they found that management fees — originally designed to cover basic operating costs — have become a major profit center as firms’ assets have grown significantly larger.

Altogether the 25 highest-earning hedge fund managers earned a combined $14.4 billion last year, down from more than $22 billion in 2010 and the lowest sum in three years. The median earner made $235 million, down from $400 million in 2010 and $500 million in 2009, while the average earner reaped $576 million, down from $883 million in 2010 and nearly half the $1.1 billion average in 2009. Still, the total rose 24 percent from 2008.

The managers at the very top of this year’s Rich List bucked the trend of lackluster performance. Seven of the eight highest earners steered their respective hedge funds to double-digit net gains, while all eight generated double-digit gross returns — an impressive accomplishment given that the average hedge fund lost more than 2 percent last year, according to the HedgeFund Intelligence Composite Index.

Bridgewater Associates founder Raymond Dalio tops this year’s list with a $3.9 billion payday for 2011. Bridgewater is now the largest hedge fund in the world, with some $70 billion in hedge fund assets under management (and $120 billion in total assets). In the past two years, the 63-year-old Dalio has made $7 billion.

Dalio was not the only hedge fund manager to rack up spectacular gains in the market last year. Carl Icahn, the second--highest earner, brought home $2.5 billion from aggressive activist battles with companies such as natural-gas producer El Paso Corp. Renaissance Technologies Corp. founder and nonexecutive chairman James Simons earned $2.1 billion after his two largest funds earned mid-30 percent returns. Tiger Global Management’s Chase Coleman rode the boom in Internet stocks to a 45 percent net return; the $550 million he made won him the No. 6 position on the list.

But many others posted gains in the low single digits. That explains why a manager needed to earn only $100 million to qualify for this year’s Rich List — the lowest minimum in four years. Of those managers who made the list thanks to management fees, most also have a large sum of their own money invested in their funds; this combination of gains from their own capital on a modest return plus their share of the fees was enough to put them on the list. Those who qualified in this manner include SAC Capital Advisors’ Steven Cohen, who made $585 million even though his main fund was up just 8 percent net of fees; Viking Global Investors co--founder O. Andreas Halvorsen, who earned $300 million despite the fact that his flagship fund was up 7.6 percent; and Tudor Investment Corp.’s Paul Tudor Jones II, who earned $175 million after his main fund, Tudor BVI Global, gained less than 3 percent.

This year’s list also features eight newcomers: Greg Jensen and Robert Prince of Bridgewater, Peter Brown and Robert Mercer of Renaissance, Elliott Management Corp.’s Paul Singer, Jeffrey Ubben of ValueAct Capital, Coatue Management’s Philippe Laffont and Boaz Weinstein of Saba Capital Management. These managers proved that even in extremely difficult market conditions, it was still possible to deliver outsize returns.

Fifteen individuals who were on the 2010 Rich List failed to qualify this year. They include George Soros, who returned outside capital in 2011; Caxton Associates founder Bruce Kovner, who just missed making the list, having earned close to $100 million; and John Paulson — the top hedge fund money earner one year ago after making a Rich List record of $4.9 billion in 2010.

See the whole Rich List here: The Rich List | AR: Absolute Return - Alpha