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Gunslingers No More: The Cautious Cash In
By Nina Munk May 22, 2005
[suP]HEDGE fund managers once had nerves of steel. In the 1980's and 1990's, men like George Soros, Julian H. Robertson Jr. and Michael H. Steinhardt made huge, daring bets on foreign currencies and on interest rate spreads. Secretive, and unsupervised by the Securities and Exchange Commission, hedge fund managers were figures of awe. In the words of a 1994 Business Week article, they were a "widely feared Wall Street subculture."[/suP]
[suP]For years, this feared subculture made millions for its investors. For example, between its inception in 1967 and its dissolution in 1995, Mr. Steinhardt's hedge fund grew at a compound rate of 24 percent a year, after fees - more than twice the compound annual growth rate of the Standard & Poor's 500-stock index (with dividends reinvested). In other words, $10,000 invested with Mr. Steinhardt over that span would have swelled to almost $5 million. .....................[/suP]
[suP]These days, though, you won't find many gunslingers in the industry. Instead, hedge fund managers are now content to beat the S.& P. 500 by a mere percentage point or two. Last month, the Hennessee Hedge Fund Index, which tracks about 900 hedge funds, was down 1.8 percent after fees; the figure is more or less in line with the 1.9 percent drop in the S.& P. 500. In 2004, the average hedge fund actually underperformed the market: with the S.& P. 500 up 10.9 percent, the Hennessee Hedge Fund Index gained only 8.3 percent......................[/suP]
[suP]In the last decade, however, hedge fund companies have started to resemble mutual fund companies: big, plodding institutions for pensioners....................[/suP]
[suP]ON average, according to Institutional Investor's most recent survey, the 25 best-paid hedge fund managers each took home $207 million in 2003, about double what they made a year earlier. That's $207 million in cash - not in equity or stock options. Meanwhile, the nation's 25 highest-paid chief executives each made an average of $37 million in total compensation last year, including options granted (but not those exercised), according to Business Week.[/suP]
[suP]Let's say that our hedge fund manager's office costs him $15 million a year. Bottom line: having done nothing exceptional, he would have pocketed a cool $26.8 million after expenses. Can you think of another business that works like that?[/suP]
