The top hedge fund manager, John Paulson, earned a whopping $3.7 billion in 2007, according to Alpha Magazine in its seventh annual survey. George Soros came in second at $2.9 billion and James Simons third at $2.8 billion. Click here if you want to see the full list of the top 50 money managers. Here are a few interesting highlights:

• The top 25 earned an average of $892 million, up from $532 million in 2006.

• The top three managers in 2007 each made more than the grand total earned by the top 25 on Alpha’s 2003 ranking.

• Five of the managers each made over $1.2 billion – the price that JPMorgan Chase & Co. is paying for the 85-year old Bear Stearns Cos. that is on the brink of collapse.

Doesn’t that make you curious what it takes to be at the epitome of the investment industry?

It’s true that the financial upside is unlimited for hedge fund managers. That’s why hedge funds are able to entice the best and brightest in the industry. Let’s not forget that their compensations are highly performance-based. In fact, also carry a downside risk that mutual fund managers don’t have to bear.

Typically hedge funds are set up as limited partnerships. The fund managers are the general partners and the investors are the limited partners. The two sources of income are:
1. Management fees, generally at 1-2% of asset size under management
2. Performance fees, generally at 20% of the fund’s profits

You can see from here how a hedge fund manager’s compensation will be affected if his fund performs poorly. Not only that, his own capital will be at risk because he has a vested interest in the fund.

There three functional roles in a hedge fund are: portfolio manager, investment analyst and trader. A partial or completion of the CFA program is required to become a portfolio manager or investment analyst. The entry level isn’t a true entry level position as it often requires experience.

If you would like to explore hedge fund as your career option, Richard Wilson has an excellent blog where you can find pretty much everything about hedge funds. In Hedge Fund Jobs, you will find job advice, career tips, resume tips and more.

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