Why do hedge fund executives earn so much compared to the chosen labor group? Em

Question

Why do hedge fund executives earn so much compared to the chosen labor group?

Employment, Hours, and Earnings from the Current Employment Statistics survey (National) Original Data Value Series Id: CES6500000001 Seasonally Adjusted Series Title: All employees, thousands, education and health services, seasonally adjusted Super Sector: Education and health services Industry: Education and health services NAICS Code: - Data Type: ALL EMPLOYEES, THOUSANDS Years: 2008 to 2018 Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2008 18978 19018 19068 19126 19166 19224 19275 19337 19343 19363 19401 19442 2009 19482 19507 19514 19521 19582 19614 19629 19681 19692 19736 19770 19804 2010 19820 19839 19896 19902 19934 19955 19980 20017 20001 20074 20119 20134 2011 20153 20163 20177 20237 20252 20288 20327 20367 20415 20457 20496 20530 2012 20574 20657 20689 20707 20747 20738 20773 20801 20841 20881 20887 20935 2013 20956 20958 21007 21054 21071 21070 21074 21143 21133 21158 21194 21196 2014 21225 21246 21292 21314 21370 21416 21449 21499 21540 21575 21625 21676 2015 21741 21787 21829 21905 21952 22002 22051 22093 22138 22217 22263 22318 2016 22339 22403 22447 22503 22556 22633 22669 22723 22777 22829 22865 22922 2017 22957 23017 23040 23086 23122 23178 23235 23283 23297 23312 23350 23380 2018 23430 23462 23491 23529 23571 23638 23679 23732

Explanation / Answer

Because they have figured out a clever fee structure and convinced their clients to give them money on their terms. The ‘standard’ fee structure involves a percentage of assets under management , usually 20%, of all returns. This structure mis-aligns incentives for many typical hedge fund strategies.

Many hedge funds are highly correlated with the market and their clients end up giving up way too much of their returns.The industry has been milking this ‘heads I win, tails I don’t lose’ set-up for years, despite returns that in the aggregate are not that exciting. So that’s your answer - the average manager makes so much not because of some fair market forces or anything else, but because they set up their business to favor themselves at the expense of their clients.

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