Why Do Hedge Fund Managers Make So Much?

Hedge fund managers are usually some of the highest-paid people in the world often earning hundreds of millions per year if not billions per year. When you take a look at their returns, however, it’s often not even higher than the S&P 500, so why are they paid so much? Well, the answer is that hedge funds aren’t exactly paid to beat the market. While beating the market is still a top priority for many managers, their true top goals are to minimize risk and maximize alpha. Alpha is a way to measure risk-adjusted returns and it lets you know if a given investment was worth the risk. An investment does not need to beat the market to have a positive alpha value. If the said investment has a low enough beta value, it could still produce a positive alpha. This video explains the inner workings of hedge funds, and why exactly hedge fund managers are paid so much money.

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Timestamps:
0:00 - Hedge Fund Managers
1:35 - Client Base
4:42 - Beta
7:21 - Alpha
9:25 - Compensation

Thumbnail Credits:
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Disclaimer:
This video is not a solicitation or personal financial advice. All investing involves risk. Please do your own research.
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