Top-earning hedge-fund managers raked in $11 billion last year, despite disappointing returns

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The globe's 25 top-earning hedge-fund managers raked in an astonishing $11 billion last year, despite producing disappointing investor returns, according to an annual list released Tuesday by Institutional Investor's Alpha magazine.

Nearly half of these hedgies posted only single-digit returns for their investors in 2016, "a lackluster sum in a year when the Standard & Poor's 500-stock index was up 12 percent, accounting for reinvested dividends," writes The New York Times. The top two earners — James Simons, founder of Renaissance Technologies, and Ray Dalio, founder of Bridgewater Associates — netted $1.6 billion and $1.4 billion, respectively.

The list is determined according to estimates of each manager's percentage of their firm's management and performance fees, and also considers their own investments in the fund.

The industry has posted nearly a decade of disappointing returns: Billionaire Daniel S. Loeb has called this phase a "catastrophic period" for hedge funds, while billionaire investor Warren Buffett has been justified in betting that, over 10 years, low-cost index funds would outperform hedge funds.

Daniel S. Loeb, Third Point
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Yet compensation has more than doubled since the first list was compiled in 2000. These numbers make the even lush paydays of top U.S. executives seem pitiful by comparison.

According to the Times:

Even the lowest-ranking manager on Alpha magazine's expanded top-50 list made more money in 2016 than any big United States bank executive, including Jamie Dimon of J. P. Morgan, Lloyd Blankfein of Goldman Sachs and James Gorman of Morgan Stanley, all of who have been criticized for their big paychecks.

The key to these large paydays is the fee system known as 2-and-20. Hedge funds typically charge investors 2 percent of their investment annually, regardless of performance. So even in a disappointing year, managers still are paid a handsome sum. In the event they make a profit, the funds take 20 percent of that as well.

Nice work if you can get it. Here are the 10 top-earning hedge-fund managers of 2016:

1. James Simons
Company: Renaissance Technologies
2016 Earnings: $1.6 billion

2. Ray Dalio
Company: Bridgewater Associates
2016 Earnings: $1.4 billion

Ray Dalio, Bridgewater Associates
Jason Alden/Bloomberg | Getty Images

3. John Overdeck
Company: Two Sigma
2016 Earnings: $750 million

3. David Siegel
Company: Two Sigma
2016 Earnings: $750 million

5. David Tepper
Company: Appaloosa Management
2016 Earnings: $700 million

David Tepper, Appaloosa Management
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6. Kenneth Griffin
Company: Citadel
2016 Earnings: $600 million

7. Paul Singer
Company: Elliott Management Corp.
2016 Earnings: $590 million

8. Michael Hintze
Company: CQS
2016 Earnings: $450 million

9. David Shaw
Company: D.E. Shaw Group
2016 Earnings: $415 million

10. Israel (Izzy) Englander
Company: Millennium Management
2016 Earnings: $410 million

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