Wall Street's Top Earners: Your Pain, Their Gain Forbes, April 15, 2008By Peter J. SchwartzProblems paying the mortgage, filling the gas tank and feeding the family have eroded living standards for millions of Americans during the past several months. Not so for people who manage big piles of money; many of them made a fortune betting correctly on the housing debacle and rising commodity prices last year. Our second annual look at the pay of folks who run hedge and private equity funds shows that the top 20 took home a collective $18.7 billion last year, 43% more than in 2006. To even make the list you needed minimum earnings of $350 million, which is $90 million higher than the year before. No chief executive of a traditional Wall Street investment bank came even close. Our top-ranked earner, hedge fund manager John Paulson ($3.3 billion), reaped much of his bounty from shorting the ABX Index, which tracks the strength of the subprime mortgage market. Paulson earned an estimated $2.3 billion from his share of fees charged to investors and $1 billion from the appreciation of his own capital invested in Paulson & Co. funds. Fund manager Philip Falcone, who ranked third with $1.7 billion, posted triple-digit returns by shorting subprime credit, resulting in $11 billion in growth for his two Harbinger Capital funds, excluding assets raised from new investors. John Burbank, who runs San Francisco hedge fund Passport Capital, made $370 million last year, also in large part by shorting home mortgage companies and mortgage-related debt.Some members of our list, like Texans T. Boone Pickens ($1.2 billion) and John Arnold ($700 million) made their fortunes the old-fashioned way: betting on energy. Pickens' $2.7 billion BP Capital Equity Fund grew by 24% after fees, while his $590 million Commodity fund grew 40% thanks to large positions in Suncor Energy (nyse: SU - news - people ), ExxonMobil (nyse: XOM - news - people ), and Occidental Petroleum (nyse: OXY - news - people ). For hedge fund billionaires Pickens and second-ranked George Soros ($2.4 billion), whose own investments compose a significant portion of their funds, there's more to be made from asset appreciation than from fees. Soros made$2 billion from the growth of personal investments within his $17 billion Quantum Endowment Fund, which returned 32% for the year.Cheap debt fueled growth for hedge and private equity funds in 2007, despitethe late-year market slowdown. Hedge funds increased their assets by 14% to$2.2 trillion, while private equity funds raised a record $300 billion for $2 trillion in assets. Each hedge fund manager on our list returned more than the 10% industry average to their investors in 2007, including two based in London. Christopher Hohn and Alan Howard each earned an estimated $400 million by investing heavily in European companies and limiting exposureto the turbulent U.S. markets. To determine Wall Street's 20 Highest Earners of 2007, we examined hedge, private equity and mutual fund principals and traders, as well as investmentbankers. The hedge fund and leveraged buyout bosses typically reap fees equal to 20% of profits and 2% of assets. Our paychecks are pretax and net of the firm's expenses, and exclude proceeds from selling shares in their own business. For example, we count the $400 million that Stephen Schwarzman of BlackstoneGroup earned from annual salary, distributions of percentage fees and capital appreciation on his investments in Blackstone's funds, but exclude the $4.8 billion that he took out of the business when it went public.Wall Street's 20 Top EarnersJohn Paulson Age: 52Rank: No. 1Rank Last Year: Not RankedFirm: Paulson & Co. (hedge funds)Headquarters: New YorkEarnings: $3.3 billionPaulson's record earnings came largely from shorting the ABX, an index that tracks the strength of the subprime mortgage market.Did you know? Paulson was valedictorian of his class at New York University's School of Commerce. George Soros Age: 77Rank: No. 2Rank Last Year: No. 5Firm: Soros Fund Management (hedge funds)Headquarters: New YorkEarnings: $2.4 billionSoros' personal investments compose more than 60% of his $17 billion QuantumEndowment Fund, which grew by 32% (after fees) last year.Did you know? Soros famously earned $1 billion in one day by shorting the British Pound in 1992.Philip FalconeAge: 45Rank: No. 3Rank Last Year: Not RankedFirm: Harbinger Capital PartnersHeadquarters: New YorkEarnings: $1.7 billionFalcone owns close to 75% of Harbinger Capital, which grew in assets by $11 billion last year on the heels of successful subprime mortgages bets.Did you know? Falcone is a minority owner of the National Hockey League's Minnesota Wild. Kenneth Griffin Age: 39Rank: No. 4Rank Last Year: No. 3Firm: Citadel Investment Group (hedge funds)Headquarters: ChicagoEarnings: $1.5 billionGriffin invests heavily in his own funds--20% of Citadel's $20 billion undermanagement at year's end was held by the firm's senior management. Did you know? Griffin started his first investment portfolio from his Harvard dorm room in 1986 after reading an article in Forbes. James Simons Age: 70Rank: No. 5Rank Last Year: No. 1Firm: Renaissance Technologies (hedge funds)Headquarters: East Setaucket, N.Y.Earnings: $1.3 billionSimon's $7.5 billion Medallion fund returned an astonishing 73.7%--and that's after the hefty 5% management and 44% performance fees. Did you know? Simons, a former code-breaker for the U.S. Department of Defense, guest lectures on occasion in Berkeley's math department. T. Boone PickensAge: 79Rank: No. 6Rank Last Year: No. 4Firm: BP Capital (hedge funds)Headquarters: DallasEarnings: $1.2 billionPickens, a veteran oilman, sees $150-a-barrel oil on the horizon, potentially within the next two years.Did you know? Pickens has donated an estimated $242 million to Oklahoma State University's athletic department since 2003.Steven CohenAge: 51Rank: No. 7Rank Last Year: No. 2Firm: SAC Capital (hedge funds)Headquarters: Stamford, Conn.Earnings: $1 billionCohen's own investments make up almost one-third of SAC Capital's $18 billion under management. Did you know? Cohen's 14-acre Connecticut estate features an ice skating rink, several golf holes, and one of the world's most valuable private art collections. David Shaw Age: 56Rank: No. 8Rank Last Year: No. 12Firm: D.E. Shaw (hedge funds)Headquarters: New YorkEarnings: $770 millionD.E. Shaw's $11 billion Oculus fund grew by 26% in 2007, while its $22 billion flagship composite fund grew 7.4% after fees.Did you know? Shaw is no longer involved in day-to-day operations of his firm, instead, the Ph.D. devotes much of his time to conducting biochemistryexperiments. John Arnold Age: 34Rank: No. 9Rank Last Year: No. 8Firm: Centaurus Energy (hedge funds)Headquarters: HoustonEarnings: $700 millionJohn Arnold's personal investments comprise an estimated 40% of Centaurus Energy's more than $3 billion under management.Did you know? Arnold, a former energy trader at Enron, is said to have earned $750 million for the company in 2001.Raymond Dalio Age: 58Rank: No. 10Rank Last Year: Not RankedFirm: Bridgewater Associates (hedge funds)Headquarters: Westport, Conn.Earnings: $580 millionBucking a recent trend, Dalio shuns public offerings, telling Forbes, “The notion of selling hedge funds is ridiculous.” Did you know? At year's end, Bridgewater was tied with Farallon Capital as the world's largest hedge fund firm, with $36 billion under management.Daniel Och Age: 47Rank: No. 11Rank Last Year: No. 19Firm: Och-Ziff Capital Management Group (hedge funds)Headquarters: New YorkEarnings: $570 million*Och earned an estimated $455 million from his share of performance and management fees, and another $115 million from the appreciation of his own capital in Och-Ziff Funds during 2007.Did you know? To hedge his bet, Och made donations to two Democratic and twoRepublican presidential candidates last year. * Does not include $272 million of cashouts from a recapitalization of the business. Timothy Barakett Age: 42Rank: No. 12Rank Last Year: Not RankedFirm: Atticus Capital (hedge funds)Headquarters: New YorkEarnings: $540 millionAtticus' two funds returned 25% and 28%, respectively (net of fees) last year, thanks in large part to plays on Freeport-McMoran and MasterCard. Did you know? Barakett was drafted by the NHL's New Jersey Devils in 1986, after scoring 79 goals his senior year at Harvard. David Tepper Age: 50Rank: No. 13Rank Last Year: Not RankedFirm: Appaloosa Management (hedge funds)Headquarters: Chatham, N.J. Earnings: $520 millionTepper owns in excess of 95% of Appaloosa, which managed average assets of $6.2 billion last year.Did you know? Carnegie Mellon University renamed its business school after Tepper, following a $55 million contribution. Christopher Hohn Age: 41Rank: No. 14Rank Last Year: Not RankedFirm: Children's Investment Fund Management (hedge funds)Headquarters: LondonEarnings: $400 millionThe Children's Investment Fund returned close to 40% to investors last year,net of their typical 15% performance fees and 1.5% management fee.Did you know? Hohn's hedge fund donates one third of all management fee income to children's charities. Alan Howard Age: 44Rank: No. 15Rank Last Year: Not RankedFirm: Brevan Howard Asset Management (hedge funds)Headquarters: LondonEarnings: $400 millionBrevan Howard's assets under management grew by almost $7 billion in 2007.Did you know? Last year, Howard's Macro fund became the first hedge fund to list on the London Stock Exchange. Stephen Schwarzman Age: 61Rank: No. 16Rank Last Year: No. 6Firm: Blackstone Group (private equity, hedge funds)Headquarters: New YorkEarnings: $400 millionBlackstone is no longer just a buyout shop--its hedge fund operations now comprise $30 billion of the firm's $102 billion in assets.Did you know? Schwarzman donated $100 million to the New York Public Libraryin March. John BurbankAge: 44Rank: No. 17Rank Last Year: Not RankedFirm: Passport Capital (hedge funds)Headquarters: San FranciscoEarnings: $370 millionBurbank's flagship $2.2 billion global fund grew by 220% last year, after fees.Did you know? Burbank, an avid fantasy baseball player, hopes to one day owna major-league team.Henry Kravis Age: 64Rank: No. 18Rank Last Year: No. 10Firm: Kohlberg Kravis Roberts & Co. (private equity)Headquarters: New YorkEarnings: $370 millionKKR made headlines when it teamed with TPG and Goldman Sachs in a $45 billion takeover of TXU, completed in October.Did you know? Kravis is a New York State fundraising co-chair for Sen. John McCain's presidential campaign. George Roberts Age: 63Rank: No. 19Rank Last Year: No. 11Firm: Kohlberg Kravis Roberts & Co. (private equity)Headquarters: New York (but Roberts is based in Menlo Park, Calif.) Earnings: $370 millionRoberts and Kravis' plan to raise $1.25 billion through a public offering was put on hold after the late-year market turmoil.Did you know? Roberts is known to spend his after work hours hitting golf balls at the Stanford University driving range. Richard Perry Age: 52Rank: No. 20Rank Last Year: Not RankedFirm: Perry CaptialEarnings: $350 millionPerry's funds returned 12% last year, thanks in part to investments in railroad transportation: Burlington North Santa Fe and Union Pacific were among his largest positions.Did you know? Perry was once sued by activist investor Carl Icahn for $1 billion, while the two dueled to take over Mylan Laboratories.

John Arnold made a boat-load last year also. He was on the other side of Brian Hunter's Amaranth natural gas trades. We all know how that turned out.

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