Tag Archives: hedge fund manager

Hedge Fund Manager Salary

A hedge fund manager salary is nothing to sneeze at. It can top four billion dollars. (And you thought doctors were well paid.)

The highest paid manager, David Tepper made $4B. Tepper did this by making a contrarian bet on financial companies.Runner up, George Soros, didn’t do so bad either. He made a mere $3.3B by generating 29% returns through global macro investing.

In fact, the average salary of the top 25 hedge fund managers in the world was $1B. Not a bad salary for a year’s worth of work. To put this in perspective, this is equivalent to 20,000 people making $50K per year.

Take that Tiger Woods!

So the real question is how do you join the club? The answer is simple, you have to mint money by investing. The best fund managers get 20% of the profits that they generate.

How to Make $1B

So if you want to make a $1B salary, you have to make $5B for your investors. Simple, right?

So how exactly do you make $5B?

You start by making great investments. Now I’m not talking about 1X or 2X returns. I’m talking about 10X to 50X returns like those that were made during the implosion of the subprime bubble by hedge fund managers like John Paulson.

Sure you could make 50X betting on some penny stock option. But how much money would you put into that trade?

So the second key is to find a trade where the risk of loss is so small that you can bet big.

What you are looking for is a trade that is massively asymmetric, where you are risking a penny to make a dollar and so your risk of loss is very small relative to the potential payoff.

Back in 2007, Paulson paid a few basis points to buy protection on subprime mortgage backed securities and he made billions when they defaulted.

You might think that these opportunities are long gone, but one hedge fund manager who is responsible for more than $15 billion dollars in assets begs to differ.

He says that “all of the asymmetry in the world lies in [this trade]”.

To find out what this massively asymmetric trade is, enter your email below.



Keep in mind that this is definitely not investment advice, I am merely sharing information that I found interesting and think that you might find interesting too.

Top Hedge Fund Managers

Who are the top hedge fund managers in the world? Names like Soros, Simons, Druckenmiller, Paulson, Tepper, Dalio, Robertson and Kovner top the list. As a group they have probably pulled in excess of a hundred billion dollars out of the markets.

So where do we begin?

Let’s start with Paulson. In 2010 he received $5 billion in total compensation. Which the WSJ says is the biggest one year haul ever.

Paulson runs the Advantage Plus and a number of other funds through his hedge fund firm. He started out in risk arbitrage and corporate event investing. Then he branched out into other areas, including his now famous move in the subprime area.

George Soros is probably the most famous hedge fund manager of all time. He has made billions of dollars and probably has one of the best and longest track records of all the managers out there. In its first two decades, Soros and partner Rogers generated returns in excess of 30% annually, which absolutely destroyed the performance of the S&P 500. Soros also hired Druckenmiller, who eventually turned out to be a great hedge fund manager in his own right.

I’ve heard some one say that Druckenmiller combined the analytical abilities of Rogers, the trading skill of Soros and the stomach of a riverboat gambler. Druckenmiller generated amazingly good returns but recently shut down his fund after making so much money that he decided that the pursuit was not longer worth the impact on his quality of life.

James Simons is probably the idol of math geeks everywhere. He was formerly a math professor, who used his mathematical abilities to start Renaissance Technologies and build trading models that are extremely profitable. His trading was so profitable that he ended up returning all outside investor money and so that he could only trade the money of his firm.

David Tepper is known for focusing on distressed securities. He buys stocks and bonds when everyone wants to sell them because they look like they are in horrible shape. A recent example of this is when he bought a large chunk of BofA when it seemed that the world was headed to a financial abyss.

Ray Dalio runs the largest fund in the world, the Bridgewater Hedge Fund. It is focused on global macro. Dalio says that his funds performance is driven by a deep, intrinsic understanding of economics. His firm was prescient for anticipating the economic collapse of 2008.

A Top Hedge Fund Manager’s New Trade of the Century

You might think that if you missed shorting the sub-prime bubble, you missed out on the trade of the century. Granted, it was a spectacular trade that cost very little to put on because almost everyone thought that the bonds where triple A, and it paid off huge.

But one top hedge fund manager thinks that there is another trade that rivals shorting sub-prime.

And why should we listen to him?

Well, he is one of the fund managers who predicted the sub-prime debacle and profited mightily from its collapse.

In fact, he says that “all of the asymmetry in the world lies in [this trade].”

To find out what this massively convex trade is, enter your email in the form below.



Two Sigma Hedge Fund

The Two Sigma Hedge Fund was started by John Overdeck a former managing director from well known quant shop D.E. Shaw. They are a quantitative firm with several billion dollars under management, which was started back in 2001. They are a very mathematical and technologically driven firm. They aim to build and utilize advance technologies to profit by capturing market inefficiencies.

Unlike many firms that choose to situate themselves in Greenwich, they are located in SoHo, which is a little less laid back.

What is Sigma?

Sigma is standard deviation. Two sigma is two standard deviations, which encompasses 95% of the results in a normal distribution. So what does the name of the firm mean? I haven’t the foggiest idea. Does it mean that their goal is to beat 95% of the other funds out there? If that’s the case, why not go for three sigma and be better than 99% of the other hedge funds.

How Does the Two Sigma Hedge Fund Generate Returns?

I’m not sure. There is very little information about them. My best guess is that they are using a similar process to D.E. Shaw which is where the founder of Two Sigma originally worked at.

D.E. Shaw was founded by hedge fund manager David Shaw who used to be a computer science professor at Columbia. Shaw made money by writing complex computer programs to identify market inefficiencies. Shaw is more of a scientist than a financier and set his firm up to resemble a high end academic institution than a financial firm.

With the help of a lot of smart people Shaw was able to build a trading powerhouse. And Two Sigma probably shares a lot of the DNA of Shaw. How much is hard to say, but there is probably a fair amount that is shared.

What are the three most interesting stocks in Two Sigma’s Portfolio?

  • This tech company has been ravaged by Apple and left for dead. It trades at a PE ratio of 3.4 and has a number of valuable patents that are almost being given away for free at the current stock price.
  • This utility pays an 3.9% dividend and is highly levered to one of the most valuable commodities on the planet. Without it, the U.S. economy would probably shutdown.
  • This foreign company was a former high flyer during the internet bubble and now it is selling for less than one eighth of its former high price. It has struck a deal with a tech behemoth and may be ready to strike back.

Like Sub-Prime on Steroids

While the manner in which Two Sigma generates returns is a black box, one hedge fund manager who is responsible for more than $15 billion, has a trade idea that is simple to understand but obscure enough to be overlooked by the rest of the world.

The idea is like sub-prime on steroids. Yes, it is that big (in reality it is actually much bigger than sub-prime) and just as obvious as the whole sub-prime bubble was in hindsight.

Enter your email below, if you would like to discover what this massively asymmetric trade is.



Appaloosa Hedge Fund

The Appaloosa Hedge Fund is run by David Tepper who made $7 billion for his investors back in 2009 by buying financial stocks when it looked like the financial system was on the verge of Armageddon. He was buying stocks like Bank of America at $3 per share when everyone thought that it was going to zero. Well it didn’t go to zero, and instead he ended up making a ton of money for his investors and around $2.5 billion for himself on BofA another other stocks.

To invest with Tepper, you have to have a strong stomach. Sure he has generated double and triple digit returns in a number of years. But these enormous returns have also been coupled with large draw downs. Investors that can’t handle the volatility of his investment style may end up selling at the bottom of a draw down rather than at the peak of his hedge fund’s high water mark.

I always find it to be a great shame when investors manage to turn a great investment into a bad one by simply having bad timing. But we can’t all have good timing as Tepper or we would all be billionaires like him, I suppose. And if we were all billionaires, being a billionaire wouldn’t be so special anymore.

Appaloosa’s Investment Strategy
Tepper focuses on investing in distressed companies. This is a field where a skilled investor can have a disproportionate impact. If you can identify the companies that are going for going out of business prices, that are not going out of business, you can make a financial killing buying them for pennies on the dollar and then waiting until they recovery and sell for full price. And this is what Tepper seems to be so skilled at doing and this has made him a billionaire.

Tepper’s Path To Billions
Tepper went to school at Carnegie Mellon. After graduation he worked at Republic Steel and then he went to work for Keystone Mutual Funds where he refined his investing skills. He did a good job and Goldman Sachs came knocking at his door. Six months after joining Goldman his skill at investing was recognized and he was made head of the high yield trading desk. Eventually he left Goldman to form his Appaloosa Hedge Fund. After raising capital and making quite a number of bold, shrewd investments he grew the fund and his own personal wealth to ten figures. Not bad for a kid from Pittsburgh.

John Thomas Hedge Fund

John Thomas Hedge Fund was founded back in 1990. Thomas was the first hedge fund manager focused on Japan. In 1999 he sold his fund and worked on managing his own investments. In 2007, John Thomas launched a new hedge fund and research outfit branded as the Mad Hedge Fund Trader.

Thomas’ newest venture focuses on making large macro calls in the financial markets. He is willing to trade almost every instrument under the sun from the Yen to the grains.

Thomas has quite an interesting history. He studies Biochemistry and Mathematics at U.C.L.A. back in 1974. Later he studied Japanese and worked for a Japanese money management firm. In 1977, he became a correspondent for The Economist. From there he had a series of stints in financial firms and then made complete u-turn as a pilot for the Marines. After that, it was back to the financial world.

Paulson Hedge Fund

The best known Paulson Hedge Fund is the Advantage Plus. It is primarily focused on risk arbitrage and investing in other corporate events like bankruptcies. But John Paulson is a hedge fund manager who has shown a propensity to also focus on long/short investing and taking macro bets as well, like his foray into shorting subprime credit default swaps and betting big on gold.

This hedge fund has done really well over the past few years, especially in the wake of the subprime collapse and the subsequent rebound in financials. Paulson displayed excellent timing in the subprime collapse, when he shorted credit default swaps. And he displayed even more remarkable timing when catching the rebound off the lows.

But right now his fund is off 20% from its recent high water mark after the recent declines in financials and the debacle with Sino Forrest.

Is this a temporary decline or the start of something more serious?

It’s hard to say, but the man who was instrumental in Paulson’s wager against subprime, Paolo Pellegrini, left the firm a while back to start his own fund. So Paulson may have lost one of his firm’s key players.

Pellegrini’s hedge fund, interestingly, returned all outside investor money in 2010. He said that the environment was becoming a lot more difficult and decided to focus on managing his own money for a while. Could this difficult investing environment be part of the reason for Paulson’s current draw down?

To Big To Succeed?

One factor that is unfavorable to Paulson’s Hedge Fund is the size of assets under management. It is not the biggest fund in the world but it is still very massive. It has around $37B under management and this makes it a lot less nimble than many of its smaller competitors. This makes it harder for Paulson to get into and out of positions at favorable prices, so this makes it harder and harder for him to outperform.

But, Paulson is a very smart investor, so I wouldn’t count him out just yet. He graduated first in his class from NYU; then he got an MBA from HBS. He made his first few million dollars in merger arbitrage and then he was sharp enough to predict and bet against the subprime bubble. He has made a lot of wise moves in the past, so there is a good chance that he will keep making them in the future.

But only time will tell if he can continue to keep making enough great trades to keep moving the needle upward, as his AUM grows it becomes harder and harder to outperform.