March 25 (Bloomberg) -- James Simons, head of Renaissance Technologies Corp., deposed John Paulson as the world’s best- paid hedge fund manager last year as the credit crisis cut pay by 48 percent, Institutional Investor’s Alpha Magazine said.

Simons, chairman and chief executive officer of the East Setauket, New York-based firm, earned $2.5 billion, more than Paulson, the founder of New York-based Paulson & Co., who reaped $2 billion last year, the magazine said today. The top 25 managers earned a total of $11.6 billion, with average compensation declining 48 percent to $464 million, Alpha said.

The credit crisis has slashed hedge fund returns and eroded pay. Just five of last year’s top paid managers made the list this year, Alpha said. Citadel Investment Group founder Ken Griffin, who ranked fifth in 2007, dropped off the list as his funds lost him $2 billion, Alpha said.

Compensation for U.S. hedge-fund employees may drop as much as 25 percent this year as the firm’s try to recoup last year’s losses, according to estimates by Alan Johnson, founder of Johnson Associates Inc., a New York-based firm that advises on pay. The average hedge fund declined 19 percent in 2008, the worst year in nearly two decades, according to Hedge Fund Research Inc. About 1,471 funds, 15 percent of the $1.4 trillion industry, shut last year, according to HFR.

John Arnold, a former Enron Corp. trader who turns 35 this month, took third place with $1.5 billion after his Centaurus Energy fund rose 80 percent, the magazine said. George Soros, 2006’s top earner, was placed fourth with about $1.1 billion.

New Arrivals

New arrivals on this year’s list include Pierre Andurand and Dennis Crema, founder of BlueGold Capital Management LLP, which has returned 307 percent since starting last year.

Hedge funds are mostly private and unregulated pools of capital where managers can buy or sell any assets, participating substantially in the profits of the money invested. Alpha estimates managers’ earnings based on assets under management, fees, returns, personal investments in the funds and ownership stakes in their firms.

The following table is ranked by the highest money earners:

Rank Person              Firm                               2008 est.
1  James Simons          Renaissance Technologies Corp.     $2.5 billion
2  John Paulson          Paulson & Co.                      $2.0 billion
3  John Arnold           Centaurus Energy                   $1.5 billion
4  George Soros          Soros Fund Management              $1.1 billion
5  Raymond Dalio         Bridgewater Associates Inc.        $780 million
6  Bruce Kovner          Caxton Associates LLC              $640 million
7  David Shaw            D.E. Shaw & Co.                    $275 million
8  Stanley Druckenmiller Duquesne Capital Management LLC    $260 million
9= David Harding         Winton Capital Management LLC      $250 million
9= Alan Howard           Brevan Howard Asset Management LLP $250 million
9= John Taylor Jr.       FX Concepts Inc.                   $250 million
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SOURCE: Institutional Investor      http://www.institutionalinvestor.com

To contact the reporter on this story: Tom Cahill in London at tcahill@bloomberg.net

Last Updated: March 25, 2009 07:17 EDT