Five of the 25 people on the list earned above the $135 million threshold needed for inclusion even though the funds they managed lost money. This works because hedge fund managers are typically compensated on the basis of a "2 and 20" system, in which they earn a 20 percent share of the fund's profits but also charge a management fee equal to 2 percent of the total assets under management. That 2 percent fee makes it possible to earn a hefty sum even if the fund loses money — though in the long run a fund that consistently loses money will presumably lose customers.
The hedge fund industry is often a subject of political controversy because some managers benefit from a tax loophole known as "carried interest" that lets them pay taxes at the preferential capital gains tax rate.
Bernie Sanders, Donald Trump, and Hillary Clinton (and Barack Obama, for that matter) have all in one way or another proposed closing this loophole, though actual hedge fund managers note that fewer of them benefit from carried interest than politicians seem to believe and it's in many ways a bigger deal for the venture capital industry.
A new front in possible political controversy comes from a mid-April report by the Financial Stability Oversight Council (FSOC), a council of federal financial regulators, which suggested that debt-financed investment in the hedge fund sector could be a source of systemic risk in the future. Unlike investment banks, hedge funds are largely exempt from prudential regulation under the existing legal framework — indeed, a hedge fund is largely defined by operating in a non-regulated space — and FSOC did not put forward a specific proposal to change that.
But its discussion paper is a sign that regulators are growing worried that as bank regulation grows stricter more problems are leaking over into the unregulated sector, and federal authorities are considering ideas for a crackdown.