No hedge fund manager is going to be claiming poverty any time soon. By any reasonable standard of wealth the denizens of Mayfair and Connecticut are still rich and getting richer still. But life is — slightly — tougher.
The latest rich list rankings from Alpha Institutional Investor calculated the combined annual earnings for the world’s top 25 hedge fund managers at $11 billion, the lowest total in 12 years and almost half the $21.2 billion they were taking home three years ago.
Last year a hedge fund manager needed to earn “just $130 million” to enter its rich list, the lowest floor for the rankings in five years.
Behind the drop in earnings was a withdrawal of investors’ money from funds. Last year $70 billion was taken out of hedge funds, according to Hedge Fund Research, as a combination of poor performance and high fees led clients to look for other homes for their money.
Last year the Hedge Fund Research Index gained 5.4 per cent, which might not look like a bad return until you consider that simply putting your money in a FTSE 100 tracker at the beginning of 2016 would have seen an investor end it with a gain of about 14 per cent, while an S&P 500 index fund would have gained more than 10 per cent.
Ten years ago to prove this point, Warren Buffett, the world’s second richest man and a hedge fund sceptic, bet $1 million with any hedge fund manager that would take his wager that a hand-picked group of at least five funds would not beat the main US stock market index over the period. Mr Buffett won the bet and Jeffrey Tarrant, chief executive of Protégé Partners, who took the bet, had to pay up.
In London, those who work closely with hedge funds sense a drop in managers’ mojo. “It’s really tough to make money out there and a lot of people are considering leaving the industry,” one City source said.
Indeed in recent years some of the most successful managers have given back their clients’ money to focus on managing their own fortunes instead of having to worry about fickle customers.