Wednesday, March 25, 2009

These are the guys that are going to save our financial system?

I've said for some time that if you think the money paid to AIG exec's is excessive you haven't followed the hedge fund industry very closely (for a balanced view of the AIG bonuses from an AIG exec, I think everyone should read this op-ed at the NY Times). The hedge fund guys (and gals) make real money.

The old hedge fund model was that if you give me $100 to invest, I take $2 today to cover my cost and if I earn $15 dollars for you in 2008, then I get to to keep 20% of that gain (another $3). So in theory you are happy with your 10% and I'm happy with my $5. Now assume that I'm not managing $100, but $20 billion and you can see how the pay scale can really ramp up.

Alpha magazine put out their annual list of top hedge fund earners in 2008 (article here). The earnings are down substantially this year, but they are still eye-popping. The 9th guy on this list made more than A-Rod will make in his career, but you've probably never heard of him.

Rank: 1 James Simons Est. 2008 earnings: $2.5 billion
Rank: 2John Paulson Est. 2008 earnings: $2 billion
Rank: 3John D. Arnold Est. 2008 earnings: $1.5 billion
Rank: 4George Soros Est 2008 earnings: $1.1 billion
Rank: 5Ray Dalio Est. 2008 earnings: $780 million
Rank: 6Bruce Kovner Est. 2008 earnings: $640 million
Rank: 7David Shaw Est. 2008 earnings: $275 million
Rank: 8Stanley Druckenmiller Est. 2008 earnings: $260 million
Rank: 9 (tie)David Harding Est. 2008 earnings: $250 million
Rank: 9 (tie)John Taylor Jr.,Est. 2008 earnings: $250 million
Rank: 9 (tie)Alan Howard Est. 2008 earnings: $250 million

I don't begrudge anyone making what the market will pay. Kudos to these guys for making $2 bil/year in this economy.

The problem with Sec. Geithner's plan is that he is dependent upon private money ie, Hedge Funds, to step up and buy assets off the banks books. If the plan works, these same ultra-wealthy are poised to make the Robber Barrons look like public servants. Do you think that might cause a bit of an uproar in Detroit or Phoenix or LA?

Cheers!

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