You make a few unrealistic assumptions, and you're ignoring opportunity cost. Small funds charge more like 1 and 10-15%, your example assumes 0 and 20%. You ign

You make a few unrealistic assumptions, and you're ignoring opportunity cost. Small funds charge more like 1 and 10-15%, your example assumes 0 and 20%. You ignore expenses; besides the normal costs of any business, like legal and accounting services, hedge funds usually have a Bloomberg Terminal ($24k/year) and usually other expensive research, as well as expensive compliance and fund administration services. $50mm is a lot of money to raise unless you know a lot of rich people and have an established track record as a good investor. Someone like that can make a very good salary as an employee of an established fund, and not have to deal with the extra hassle of running a business. The flip side is they probably also have a high net worth, and are keeping 100% of the gains from whatever they personally invested. But on balance running a $50mm hedge fund isn't as much of a slam dunk as you might think. The regulatory and investment environment is pushing things to a winner take all situation, where there are fewer, larger hedge funds.