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Top Hedge Fund Managers Collect Big Paychecks Despite Underperformance

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Sometimes you get more than you deserve, even if your clients don’t.

That’s clearly the case for many hedge fund managers who earned hundreds of millions of dollars or more even though their funds on average underperformed the S&P 500, according to the 2015 Rich List of the highest earning hedge fund managers from Institutional Investor’s Alpha magazine.

The 25 top earning hedge fund managers collected $11.62 billion in pay, but 12 of them had gains only in the single digits in 2014 when the S&P 500 rose 13.7%. Their average pay of $467 million, however, was down sharply from $846 million in 2013.

Last year was the sixth consecutive year when hedge funds on average underperformed the broader market. A composite index of 2,200 portfolio collected by HFR, which tracks the hedge fund industry, gained just 3% on average in 2014.

Leading the pack of highest earning hedge fund managers in the II Alpha survey is Ken Griffin, founder and CEO of Citadel, the hedge fund firm that recently hired former Federal Reserve Chairman Ben Bernanke as a senior advisor. Griffin earned $1.3 billion last year when Citadel gained 18.3%, besting the broader market.  Other managers at the very top of the list also had funds with strong performance.

Following Griffin is James Simons of Renaissance Technologies, who earned $1.2 billion. The firm’s best performing equities fund gained 14.5%, and its institutional future fund gained 7.4%.  Simons no longer runs his company day to day and spends “a good chunk of the year on his 226-foot yacht Archimedes,” according to II’s Alpha survey.

Next is Raymond Dalio of Bridgewater Associates, which has $170 billion in assets under management, more than any other hedge fund. He earned $1.1 billion while his two main Pure Alpha funds started the year strong but finished with gains of just 3.6% and 8.7%.

William Ackman, the controversial head of Pershing Square Capital Management, earned $950 million. His funds gained between 36% and 40.4%, according to II’s Alpha, driven by gains in pharmaceutical company Allergan, long positions in Canadian Pacific Railway and a few other companies, and a bet against nutritional supplement maker Herbalife.

Completing the top five highest paid hedge fund managers is Israel Englander, of Millennium Management. He earned $900 million last year.

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