A $2.5 billion payout in 2009 to James Simons, founder of the East Setauket-based hedge fund Renaissance Technologies, put him in the third-highest slot among hedge fund managers in annual compensation last year, a trade publication reported.
Simons, a former mathematics professor, announced his retirement from Renaissance Technologies last year.
Tepper's earnings were the highest on record for any year, besting the previous $3.7 billion annual earnings record set in 2007 by John Paulson. Tepper's fund increased in value 130 percent in 2009.
Tepper's compensation was based upon his accurate bet that some bank shares would recover. Paulson's was based on a prediction that housing prices would fall; in 2009 Paulson earned $2.3 billion.
The rankings are compiled by the publication Institutional Investor's AR: Absolute Return + Alpha. The annual ranking, featuring the heads of some of the industry's oldest and biggest hedge funds, was released Thursday.
Analysts had expected the overall increase after the average hedge fund gained 20 percent and investors began putting new money into the loosely regulated $1.5 trillion industry in 2009, the report said.
Seven of the world's top hedge fund managers earned $1 billion or more, due to a stock market rally that pushed returns to their highest levels in a decade.
Hedge fund managers typically earn management fees plus performance fees that can be as high as 50 percent of fund profits.
Money makersTop 10 highest-earning hedge fund managers for 2009
1. David Tepper, Appaloosa Management, $4 billion
2. George Soros, Soros Fund Management, $3.3 billion
3. James Simons, Renaissance Technologies, $2.5 billion
4. John Paulson, Paulson & Company, $2.3 billion
5. Steve Cohen, SAC Capital Advisors, $1.3 billion
6. Carl C. Icahn, Icahn Capital, $1.3 billion
7. Edward Lampert, ESL Investments, $1.3 billion
8. Ken Griffin, Citadel Investment, $900 million
9. John Arnold, Centaurus Advisors, $900 million
10. Philip Falcone, Harbinger Capital, $825 million
Source: Institutional Investor's AR: Absolute Return + Alpha