Hedge Fund Pay By Title And Performance

Hedge fund pay is out of this world! Some hedge fund managers make billions of dollars. No wonder why so many of our best and brightest try and get a job at a hedge fund out of school or after investment banking.

Working at a hedge fund is one of the top goals for many finance majors and MBA graduates. Hedge funds such as Bridgewater Capital, Renaissance Capital, Two Sigma, Millennium Management, and Tiger Global are some of the elite hedge funds in the world.

Your compensation is based on performance, size of assets under management, and the number of employees. First-year associates out of business school can make $250,000 – $500,000 at the largest shops.

Hedge Fund Pay By Title, Fund Size, And Performance

Hedge Fund Pay By Title And Performance
hedge fund compensation

Hedge Fund Longevity

The problem with hedge funds is that they tend to underperform during a bull market. Since 2010, overall hedge fund performance has significantly lagged the S&P 500. With the proliferation of low cost ETFs and index funds, the hedge fund industry is shrinking.

Take a look at some hedge fund performance numbers by month from the Barclays Hedge Fund Performance Index. The S&P 50 was up 21% in 2017, hence hedge funds underperformed by a whopping 50%, for example. It's a tough world out there. The numbers for 2019 and 2020 were not much better given it was a bull market, despite the March 2020 meltdown.

Hedge fund performance index
Barclays Hedge Fund Performance Index: Underperformance

Hedge Fund Performance Versus The S&P 500 In 2021

Below is a chart highlight how some of the top hedge funds performed in 2021 versus the S&P 500, which was up 28%. Only three of these hedge funds outperformed the S&P 500. But I can assure you that ALL the hedge fund managers made a lot of my for themselves.

The founder of Melvin Capital, -41.5%, bought himself a $50 million fat pad in Miami in 2021. It's great to be a hedge fund manager!

Hedge Fund Performance 2021

If you want to join a hedge fund, join with of the larger funds with a longer track record. Work your way up from analyst to portfolio manager over time. More money is heading towards passive investments instead of active investments due to fees and performance. But you won't make hedge fund pay at an index fund manager like Barclays.

If you really want to make the mega bucks, where you're pulling down tens, if not hundreds of millions a year, the only way is to start your own hedge fund. Grow your assets under management to multiple billions. Then significantly outperform the market so you can earn your 2% management fee, and 20% of upside.

My friend, the head of risk-arbitrage for a $3.5 billion fund just bought a $25 million house in cash. Hedge fund pay is amazing. You just have to get in and perform!

Related: How Do Hedge Funds Make So Much Money

If You Want To Invest In A Low-Cost Hedge Fund

Going forward, hedge fund performance may improve given valuations are high and long-only returns may be lower. If you want to invest in a low-cost hedge fund, check out Titan. The investing platform only charges 1% and takes no percentage of profits.

Here is more information in my Titan review. I think investing with some downside protection makes sense after such a massive bull market since 2009.

About the Author: 

Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at two of the leading financial service firms in the world. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate.

In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $200,000 a year in passive income. He spends time playing tennis, hanging out with family, consulting for leading fintech companies and writing online to help others achieve financial freedom.

FinancialSamurai.com was started in 2009 and is one of the most trusted personal finance sites today with over 1.5 million organic pageviews a month. Financial Samurai has been featured in top publications such as the LA Times, The Chicago Tribune, Bloomberg and The Wall Street Journal. 

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