Hedge Funds Still a Lucrative Business for Money Managers

Any concerned London or Paris-based money men fretting over steep taxes this holiday season should be reminded that abandoning the relative safety of the partner track with a bank for a hedge fund can still be a very lucrative endeavor. That's right; the billion dollar paycheck has returned to the hedge fund industry.

Despite some dismal performance numbers last year, many hedge funds have aggressively rebounded in 2009, meaning a windfall for managers who are typically paid based on assets under management and returns. Investors with the stomachs to stay on for the ride have benefitted as well. Indeed, such a scenario could nearly have been prophesied with the right set of tea leaves as most hedge funds try to outpace typical indices by gaining alpha, or risk-adjusted excess returns. Therefore, outsized gains after steep losses should have been anticipated by managers and investors alike. I suppose that 'easier said than done' should come to mind however when one recalls that many funds went out of business last year and fortunes were lost in devastatingly short order.

Despite all that, there could be a real risk that the 'smart people' who banks are afraid of losing due to the aforementioned tax situation will be on the move this spring. However, if so, it is likely that they will be more tempted by higher paychecks at rebounding hedge funds than repelled by any tax issues. If we were all so lucky to have such options...