I don't expect any WSO'ers to have some inside scoop here... but I was just doing the math and I don't 100% understand how the economics of a hedge fund work. Lets take a simple example.
PM manages a $1bn book
- Has 2 Jr PMs working under him, 2 Sr Associates and 2 Associates; so 7 people total
- Fund a structured as 8% hurdle, 20% carry
- In a given year you hit a 30% return; that means you generated $220 million of value for investors subject to carry; 20% or $44 million in carry generated by the PM and his group; now some subset of that goes to the team...
Let's assume its 50% (FYI, its generally about one-third for professional services,, consulting, lawyers etc). That's $22m, applying some not stupid carry pie distribution you get to the below.
Now don't get me wrong, its preposterous for a 30-something year old to make $2.5 million or a PM to make $14 million a year. But that just doesn't strike me as stupid money... as in PM of a $1bn book and one of his few henchmen type of money. Obviously the difference between $14m and everyone else is a big big difference but still... throw in the volatility, lifestyle, pressure etc... and what the fuck?
And this is very large book at a 30% return run by a handful of people.