Pallotta among top in hedge-fund pay
Tudor manager was only Bostonian to make the list
Even when Jim Pallotta has a bad year, he has a good year.
As US equities manager for Tudor Investment Corp., the 48-year-old fund manager earned $200 million last year, according to a survey published in a trade magazine yesterday. That makes Pallotta, a co-owner of the Boston Celtics, the 14th-highest paid hedge fund manager in the country and the only Bostonian on the list.
The showing was all the more remarkable because according to Institutional Investor's Alpha magazine, Pallotta's Raptor Global Portfolio had its worst showing in four years in 2005 -- and still rose 8.9 percent. The Dow Jones industrial average, by comparison, fell 0.61 percent.
Raptor has returned 20 percent on average since 1993, the magazine reported. Those consistent returns put Pallotta in rare company as one of just seven fund managers who were among the highest-paid in each year since the magazine started issuing its report in 2002, said editor Michael Peltz.
In an interview yesterday, Pallotta declined to discuss the magazine's income estimate but noted that at his firm and others, managers invest most of their own wealth in their own funds, giving them the right incentives.
``Most of us have the majority of our personal holdings in these funds. We eat our own cooking; we are our own largest clients," he said.
The magazine attributed Raptors' down year to its failure to capitalize on high energy prices and being hurt in the healthcare sector. Pallotta says only the first part of that analysis is correct.
Hedge funds' holdings have soared to more than $1 trillion as wealth investors, pension funds, and others have rushed to capitalize on the lightly regulated sector that often embraces riskier strategies -- even though the funds' overall performance has flattened .
The magazine still found plenty of high fund pay for 2005, led by Long Island fund manager James Simons of Renaissance Technologies Corp., who earned $1.5 billion, followed by T. Boone Pickens Jr. of Texas with $1.4 billion, and New York investor George Soros with $840 million. Two other mangers also made $200 million.
The high figures partly reflect that principals often invest their own money and may pay their staff from these profits. Michael Goodman of executive-search firm Long Ridge Partners in New York also notes that many managers previously worked for mutual-fund companies or other institutions that kept profits and paid managers a set salary.
Hedge funds pay their stars according to a formula, typically 2 percent of holdings and perhaps 12 percent of total returns, he said. ``If they generate high alpha, they're worth it," Goodman said, using a term that refers to the difference between a fund's performance and that of its benchmark -- and the origin of the trade magazine's name.
Aside from Pallotta, the only other Bostonian that Peltz could remember on his list is Seth Klarman of Baupost Group, who made the cut in 2003 then dropped off. ``What's interesting is that for a town that has such a huge mutual fund presence, there's very few hedge fund managers" of the same scale as Pallotta, Peltz said.
Another well-known manager in town, Jack Meyer of Convexity Capital Management, still is unlikely to appear on the 2007 version of his list, he said, given the size of his holdings.
Pallotta owns homes in Wellesley and on Nantucket. The Celtics media guide also says he is involved with groups such as the Boston Children's Hospital Trust and Big Brothers Big Sisters of America. The 2004 tax filing of the James J. Pallotta Charitable Trust, the most recent available, shows it had $11 million in assets and gave $500,000 to the Fessenden School, a boys' school in West Newton.
Celtics managing partner Wyc Grousbeck says Pallotta tells of having grown up in the North End and walking to the old Boston Garden to watch games from the cheap seats: ``Now he gets to sit courtside."
Grousbeck was asked why Pallotta deserved so much more than the Celtics' highest-paid player, Paul Pierce, who made $13.8 million this past season. ``Paul only has to play 82 days" a year, Grousbeck said.
Ross Kerber can be reached at kerber@globe.com. 
