04/24/2008 05:12 am ET Updated May 25, 2011

Hedge-Fund Managers Score Biggest Ever Payday

It's a good day to be a hedge fund manager.

Institutional Investor's Alpha magazine has just released it's annual ranking of top hedge funds earners, and some of the salaries are astounding.

At the top of the list is Paulson & Company founder John Paulson, who made a whopping $3.7 billion last year.

The New York Times reports on the hedge fund bonanza:

[Hedge fund managers'] unprecedented and growing affluence underscores the gaping inequality between the millions of Americans facing stagnating wages and rising home foreclosures and an agile financial elite that seems to thrive in good times and bad. Such profits may also prompt more calls for regulation of the industry.

Even on Wall Street, where money is the ultimate measure of success, the size of the winnings makes some uneasy. "There is nothing wrong with it -- it's not illegal," said William H. Gross, the chief investment officer of the bond fund Pimco. "But it's ugly."

The richest hedge fund managers keep getting richer -- fast. To make it into the top 25 of Alpha's list, the industry standard for hedge fund pay, a manager needed to earn at least $360 million last year, more than 18 times the amount in 2002. The median American family, by contrast, earned $60,500 last year.

Combined, the top 50 hedge fund managers last year earned $29 billion. That figure represents the managers' own pay and excludes the compensation of their employees. Five of the top 10, including Mr. Simons and Mr. Soros, were also at the top of the list for 2006. To compile its ranking, Alpha examined the funds' returns and the fees that they charge investors, and then calculated the managers' pay.

The Wall Street Journal adds:

Those who know the hedge fund business won't be particularly surprised that there were so many outsized successes. Hedge funds make the most money when there's a lot of volatility in the markets, and 2007 provided that with the roller coaster credit crunch. The glaring caveat is that hedge funds can make money in those roiling markets as long as they can stay in business. The markets are fickle, and the threat is that today's successful strategy can be tomorrow's liquidation, as the collapse of Peloton Advisors proved. As they say in those fund documents: Past results are no guarantee of future returns.

The top ten earners, as reported by Alpha Magazine, are as follows:

1 John Paulson, of Paulson & Co., earned $3.7 billion

2 George Soros, of Soros Fund Management, earned $2.9 billion

3 James Simons, of Renaissance Technologies Corp., earned $2.8 billion

4 Philip Falcone, of Harbinger Capital Partners, earned $1.7 billion

5 Kenneth Griffin, of Citadel Investment Group, earned $1.5 billion

6 Steven Cohen, of SAC Capital Advisors, earned $900 million

7 Timothy Barakett, of Atticus Capital, earned $750 million

8 Stephen Mandel Jr., of Lone Pine Capital, earned $710 million

9 John Griffin, of Blue Ridge Capital, earned $625 million

10 O. Andreas Halvorsen, of Viking Global Investors, earned $520 million

But as Alpha warns:

Glory can be fleeting. Five managers from last year's top 25 are now officially, well, last year's news, including billionaires Edward Lampert of ESL Investments and Caxton Associates' Bruce Kovner.

See a list of who was considered a top earner last year, but has since fallen off.