Why and how do hedge fund managers make so much money?
THEY DELIVER VALUE MANY TIMES THEIR FEES. Assume a $1b (USD) hedge fund delivers a 15% return in 2017 — that means they made $150 million for their investors — in 1 year.
Using the old school “2 and 20″, they would get 2% of the $1b + 20% of the profits, which comes to: $50m, in one year.
Think of income as a portion of the value you deliver. Deliver $150 million in value in 1 year and you get a nice paycheck, now compare that to a used car salesman that sells only $200k worth of cars in a year. $150,000,000 vs $200,000. See the difference?
Whether you are a hedge fund manager, used car sales person, programmer or NFL player. Imagine getting paid 1/3 of the value you deliver…Now, think about how can you deliver HUGE VALUE?