Hedge fund managers have been described as many things, both positive and negative, but essentially they are simply investment managers who try to earn a profit on their clients' money. While the highest-paid hedge fund managers can often have exorbitant salaries, many of the junior managers earn compensation more in line with much of the financial services industry overall.
Hedge Fund Definition
A hedge fund is an unregistered investment management company that typically uses advanced arbitrage and hedging techniques in an attempt to achieve superior investment results. Similar to a mutual fund, a hedge fund pools together money from many different investors and generally invests the funds on a collective basis. However, unlike a mutual fund, a hedge fund does not register with the Securities and Exchange Commission or any other U.S. regulator, and investment in the hedge fund is generally restricted to a limited number of wealthy, sophisticated investors.
Hedge Fund Fee Structure
Hedge funds generally charge investors two sets of fees. The first is an annual management fee that usually ranges from between 1 and 2 per cent of an investor's assets in the fund. The second fee is a performance-based fee that charges the customer 20 per cent of the fund's gains in a given year. For example, if a client invested £65,000 and the fund earned 40 per cent in one year, the additional fee would be £5,200, or 20 per cent of the investor's £26,000 gain.
Becoming a Hedge Fund Manager
Unless a manager is hired from an outside fund management company, he will begin his career as an analyst with the hedge fund. Analysts do a lot of the research, calculation and paperwork for the senior fund managers, who can then focus on market movements and overall fund strategies. In 2008, the average junior analyst with between 1 and 4 years of experience earned a base salary of £67,503.
Average Hedge Fund Manager Salaries
As of 2008, a junior portfolio manager earned an average salary of £99,283, while a senior manager earned £118,312 as a base salary. While hedge fund manager salaries may seem substantial, many managers work on an incentive basis and look forward to lucrative bonuses at the end of an investment year. These bonuses are generally tied to the performance of the overall fund in a given year. In 2008, average junior portfolio manager bonuses were £320,332, while senior manager bonuses averaged £280,328.
Top Hedge Fund Manager Salaries
The top 25 hedge fund manager salaries for 2007 were a combined £14.6 billion, or £585 million each on average, including bonuses. In 2008, a down year for the stock market, the average combined salaries were £7.5 billion, or an average of £301 million apiece.