NEW YORK, May 6 (Reuters) - Hedge fund mogul David Tepper had a case of deja vu when he ranked as the best paid hedge fund manager for the second year running by earning $3.5 billion in 2013 with a savvy bet on airline stocks, according to a new ranking.
Even though many hedge funds earned only lackluster returns last year and sharply trailed the S&P 500's 30 percent gain, it was a banner year for a small number of hedge fund managers, according to Institutional Investors' Alpha's 13th annual ranking of the industry's best paid managers.
Tepper, who runs Appaloosa Management, was followed in second place by Steven A. Cohen, who earned $2.4 billion.
For Cohen it was a bittersweet end to his decades as a hedge fund manager which ended when his SAC Capital Advisors pleaded guilty to insider trading. The deal with the government forced him to stop managing money for outsiders and turn his operation into a so-called family office.
Investors who run family offices no longer qualify for this list, which explains why George Soros and Carl Icahn no longer make appearances.
The industry's 25 best paid managers earned $21 billion between them, roughly 50 percent more than they earned in each of the previous two years, the list showed.
John Paulson, who ranked first on the list twice when his Paulson & Co scored big gains in prior years on a bet against overheated mortgages and on gold, came in as the third-highest earner with $2.3 billion in pay.
James Simons, a retired mathematician who ran Renaissance Technologies, ranked fourth with $2.2 billion while Kenneth Griffin, who laid the groundwork for Citadel in his Harvard dorm room, came in fifth with $950 million in earnings.
The magazine's so-called Rich List's Second Team, men who failed to rank in the top 25, included a handful of managers who pursue activist investment strategies where they push for change at corporations. Investors have been more interested in putting money into activist funds after their returns have topped the average hedge funds' gains.
William Ackman, who runs Pershing Square Capital Management, Jeffrey Ubben who runs ValueAct Capital and Barry Rosenstein, who runs Jana Partners, are on that list.
(Editing by Cynthia Osterman)