A hedge fund is an investment term that is used to describe a pool of money in which investors put all their assets together so that they have more to invest. The person who is tasked with managing all of these assets is known as the hedge fund manager. It is their job to see to it that all of the money is invested in the manner agreed upon by all by investing members. Usually there are a number of different ways to get compensation to a hedge fund manager.
Many times the compensation to a hedge fund manager is an allocated amount of money that is based on their performance. This compensation payment usually equals a percentage of unrealized and realized appreciation of the fund's assets that are payable on an annual basis. The percentage of appreciation that this performance payment usually equals is something like 20 percent. In addition to this, the hedge manager many times will also get paid a management fee that equals something like 1 percent of the total assets that are being managed by them. This management fee is usually either paid out monthly or quarterly.
If there are two management entities that are utilized, then it would usually be the general partner that gets the performance based payment, whereas the management company will get the management fee. When this setup is used and this payment method utilized, then it is the management company that is in charge of paying for the overhead of the hedge fund manager, things like rent, office equipment and office furniture. It also gets compensation to a hedge fund manager. The management company will be in charge of employing the hedge fund manager's personnel. The general partner is in charge of managing the money that has been invested.
Even with the economy in the shape it is currently in, hedge fund managers have still been able to rake in huge amounts of money, with the top 25 managers in 2009 earning a staggering $11.6 billion. Although even their money was not left untouched by downturn in the stock markets, as the top 25 managers in 2007 earned about double that with $22.5 billion. Compensation to a hedge fund manager like that is a force to be reckoned with even when the economy is in good shape, but with the recent collapse, even facing an 18 percent loss as investors pulled out in droves, it is still a huge enough sum to make even the richest Hollywood actors and sports stars jealous.
Next: How the Rules and Regulations Work ››
