A Delicate Art

April 20, 2007  

For a hedge fund, getting compensation right can be the difference between success and failure. For our inaugural Hedge Fund Compensation Report, we surveyed more than 800 people at nearly 600 firms to find out what they are paid -- and what they think of their money.

Compensation is at the very core of the hedge fund industry. The opportunity to earn vast sums of money has long drawn people from traditional asset management firms and investment banks. With a little luck and a lot of savvy, analysts and traders can dream of winning their places on our list of top 25 earners in the business. The minimum required this year: $240 million. But the question of compensation is not just about the number of zeros on a paycheck. It is also about how firms manage their businesses and investment risks. Although there is no easy answer for how best to structure compensation -- different firms favor different models -- getting it wrong is a sure route to disaster. "Half of the hedge funds that fail do so for non-performance-related reasons, including compensation," says Michael Hennessy, a co-founder and managing director of institutional investment adviser Morgan Creek...

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