From The New York Times

By David Leonhardt

May 23,2007 Wed.

Worth a Lot, but Are They Worth It?

When Institutional Investor's Alpha magazine released its annual list of the highest paid hedge fund managers last month, it allowed the rest of us to play an entertaining little parlor game: what could you buy if you made as much money as those guys?

James Simons, a 69-year-old mathematician who was at the top of the list, earned $1.7 billion, which equaled the amount of money that the federal government spent last year running its vast network of national parks. Down at No. 3 on the list, Edward S. Lampert of Greenwich, Conn.; the investor who owns a large chunk of Sears, made $1.3 billion, which, if you forget about taxes, would have allowed him to buy the entire economic output of Sierra Leone. We're talking about real money here.

Today, Alpha magazine will release another big list; and this one offers a chance to answer another, arguably more important, question: Are these billionaire hedge fund managers really worth it?

The reason hedge funds are a license to print money is their fee structure. A typical fund charges a 2 percent management fee, which means that it keeps 2 cents of every dollar that it manages, regardless of performance. Mutual funds, on average, charge about 1 percent.

On top of the management fee, hedge funds also take a big cut-usually at least 20 percent-of any profits that exceed a predetermined benchmark.

So in a good year, a fund's managers bring in stunning amounts of money, and in a bad year, they still do very well. Some quick math shows why: 2 percent of a $5 billion portfolio, which was roughly the cutoff for making Alpha's list of the 100 largest funds, equals $100 million. A fund's managers get to take that fee every single year.

Last year was actually a pretty tough year for the industry. Because hedge funds tend to make a lot of countercyclical bets-thus the name-they can often turn a profit even when The stock market falls. When it's rising broadly, though, many struggle to keep up. Last year, the Standard & Poor's 500-stock index jumped 14 percent, while the average hedge fund returned less than 13 percent, after investment fees, according to Hedge Fund Research in Chicago.

But the men-and they are all men-who appear on Alpha's list of top earners don't manage average hedge funds. They manage the biggest funds in the world, the ones that are winning the Darwinian competition for capital, and many of them aren't having any trouble beating the market. One of the funds at Mr. Simons's firm, Renaissance Technologies, delivered a net return of 21 percent last year. The other returned 44 percent after fees. And Mr. Simons, who relies on a fantastically complex set of algorithms, doesn't charge " 2 and 20"-as the typical industry fees are called. He charges “5 and 44”—a 5 percent management fee and 44 percent of profits-yet he has still been doing very well by his investors for almost two decades.

I realize that a lot of people find 9-and 10-figure incomes to be inherently excessive. Or even immoral. From a strictly economic point of view, however, they are also perfectly rational. You cannot-find anyone else who is providing the same returns as the best hedge fund managers at a lower price. If you don't like it, you don't have to give them your money.

(Even if you do like it, they probably won't take your money: In exchange for being lightly regulated, hedge funds are open only to wealthy investors and big institutions.)

Thanks to their incredible performance, the biggest funds have grown far bigger in recent years. The 100 largest firms in the world managed $I trillion at the end of last year, or 69 percent of all the assets in hedge funds, according to Alpha. At the end of 2003, the top 100 had less than $500 billion, or only 54 percent of total hedge fund investments.

"The best performance is coming from the largest funds," said Christy Wood, who oversees equities investments for the California Public Employees' Retirement System, which, like a lot of pension funds, is moving more money into hedge funds.

But there is an irony to this influx of money. It all but guarantees that hedge fund pay over the next few years won't be as closely tied to performance as it has been. The hundreds of millions of dollars that have flowed into hedge funds have made it all the harder for fund managers to find truly undervalued investments. The world is awash in capital.

All that capital, of course, also translates into ever-greater management fees, regardless of a fund's performance. The flagship hedge fund at Goldman Sachs lost 6 percent last year, but it still brought in a nice stream of fees. Bridgewater Associates, which is based in Greenwich, has earned a net return of less than 4 percent in each of the last two years. Yet its founder, Raymond T. Dalio , made $350 million in 2006.

“when we have a bad year, we're essentially flat," Parag Shah, a Bridgewater executive, told me."And when we have a good year, we have a great year."

Goldman and Bridgewater may well bounce back, but the combination of extraordinary pay and ordinary performance is going to occur more and more in the coming years.

Outside of the highfliers on the Alpha list, it's already the norm. Since 2000, the average hedge fund hasn't done any better, after fees, than the market as a whole, according to research by David A. Hsieh, a finance professor at Duke. Still, even mediocre managers, after a lucky year or two, are able to attract gobs of capital and charge " 2 and 20."

So are today's hedge fund managers really worth it? Sure, but only if they deliver the sort of performance that Mr. Simons has, and very few will in the years ahead. More to the point, it's extremely difficult to know who the stars will be.

In all sorts of walks of life, people tend to think that the past is a better predictor of the future than it really is. That's why journeyman baseball player—a Yankees pitcher named Carl Pavano comes to mind-are able to sign huge contracts based on a single good season it's also why so many investors chase returns.

The genius of the world's hedge fund managers isn't only in how they invest their money. It also lies in having set up an industry that takes advantage of a timeless human trait.

词汇注解

重点单词

Output /'autput/

【中文释义】n.产量

【大纲全义】n.产量，输出(量)，输出功率

Arguably /'a:gjuabli/

【中文释义】adv.相对地考研资料免费下载

【大纲全义】adv.可论证地(可辩论地);相对地

Predetermine /'pri:di'tə:min/

【中文释义】v.预定，预先

【大纲全义】v.预定，注定; 预先决定…….的方向

cutoff /'kʌtɔ:f/

【中文释义】n.分界线

【大纲全义】n.近路，捷径; 切开; 停止; 分界线

Broadly /'brɔ:dli/

【中文释义】adv.广泛地

【大纲全义】adv.宽广地，广泛地

renaissance /rə'neisəns/

【中文释义】n.复兴，重生

【大纲全义】n. [the Renaissance]文艺复兴(时期);新生，复兴

Fantastically /fæn'tæstikəlli/

【文中释义】adv.非常地

【大纲全义】adv.非常地; 空想(非常)

inherently /in'hiərəntli/

【文中释义】adv.天性地，天生地

【大纲全义】adv.天性地，固有地

immoral / i'mɔrəl/

【文中释义】adv.不道德的

【大纲全义】adv.不道德的; 邪恶的

超纲词汇

parlor n.客厅 benchmark n.基准点

countercyclical adj.反周期的 algorithm n.算法

awash adj.被浪冲打的，被海水淹没的 gob n.大量，很多

重点段落译文

上个月，当机构投资者的阿尔法杂志公布了对冲基金经理们最高薪金年度名单时，它让我们其余的人做一个小小的室内娱乐游戏:如果你挣的钱跟这些人一样多，你会买什么?

69岁的数学家詹姆斯·西蒙斯高居榜首，拥有17亿美元，相当于联邦政府去年在国家公园网络项目上的巨大开支。位居第三位的是康涅狄格州格林尼治镇的艾德华·兰伯特，这个投资家经营庞大的西尔斯连锁百货店，年收人13亿美元，如果不计算税，能让他买下塞拉利昂的全部经济产量。我们在这里说的是实实在在的财富。

今天，阿年法杂志即将发布另一个重要的名单，这个名单有可能回答另一个相对更重要的问题:这些拥有百万资产的对冲基金经理真的值那么多吗?

对冲基金是印钱的通行证，他们的收费结构可以说明这一点。不管其性能，一种典型基金收取2%的管理费，这意味着它管理的每1美元要保留2美分。而共同基金中平均收费约为1%。

对冲基金的管理费位居榜首，因此需要进行大幅削减—通常对超过预定基准点的利润收取至少20%。

因此，在收益大的一年里，一个基金经理可以带来惊人数额的财富，而在亏损的一年里他们依然做得很好。简单做一下计算就可以明白其原因:每50亿美元的投资提取2%，也就是1亿美元;这是阿尔法的名单上的100家最大的基金的大致分界线。一个基金经理每年都会拿到这个数目的回报。

其实去年是一个相当艰难的一年。因为对冲基金试图做很多反周期的赌注——就像它的名字一样——甚至当股市下跌时，他们往往还是能扭亏为盈。而当它大幅上涨时，很多对冲基金就要努力跟上。据位于芝加哥的对冲基金研究公司称，去年的标准普尔500股票指数跌了14个百分点，而除去投资的费用后，对冲基金平均返回不到13%。

但是阿尔法杂志的名单中的高收人者一一都是男人——并不管理平均对冲基金。他们管理世界上最大的基金，是资本市场里达尔文式竞争中的获胜者，而且他们中的大多数都经得起市场的冲击。

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