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Hedge Funds Faced Choppy Waters in 2015, but Chiefs Cashed In
- danieltillett 10y agoSeems cheap. Why have they not earned more? Edit. I know snark is not the HN way, but when faced with the total obscenity that is 25 people exploiting pension funds to the tune of $12.94 billion in one year it is more than I can stomach.
- whatok 10y agoPlease detail how hedge funds exploit pension funds.
- danieltillett 10y agoThe major investors in hedge funds are pension funds. Every dollar paid in "salary" to some hedge fund manager is a dollar out of someone's retirement.
- whatok 10y agoSo these magical hedge funds are so powerful that they can force people to invest in them?
- Strom 10y agoI'm not sure about these specific ones or how the law is in the US, but in Estonia where I live, you are indeed required by law to invest 4% of your pay into pension funds. The high management fees are a major criticism point of this system.
- danieltillett 10y agoYou as the beneficiary of (most) pension funds don't get to choose where your investments are placed. There is a massive agency problem with the people running pension funds paying out billions to hedge fund managers - especially when they know (or should know) that hedge funds don't add value across the entire investment industry.
- whatok 10y agoYou as the beneficiary of a pension fund absolutely can exert influence over the investment committee of the pension fund. If there is a process in place for remedying a problem like this, how does it become another party's fault? Additionally, if the claim that "hedge funds do not add value across the entire investment industry" is true, are these pension fund employees not in some sort of violation of fiduciary duty?
- danieltillett 10y agoI have no influence over my pension fund. Pension funds as a whole are so widely invested in the market that there is no way that a hedge fund can provide an overall return. All hedge funds are a complex way of robbing Paul to pay Peter at the pension fund level.
- jordanthoms 10y agoPension funds are run by big boys also (in fact they are much larger), if they think they can get better returns elsewhere they are free to move their funds there.
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- tluyben2 10y agoPensions could've been higher if they didn't take that much out? Not sure how OP meant it but that's what I feel; same when CEO's take obscene salaries; the employees could've been paid better if she/he didn't take that kind of money. It seems obscene anyway; I can see you want to secure your future by taking enough millions (depends on where you live how many) to do that even though you make enough per month to live comfortably. I cannot see, unless (like Griffin does by the way) you have a higher plan, how taking more is better than flowing it back to employees or the actual purpose of your company (which in this case is pensions)?
- Nrsolis 10y agoYou completely misunderstand how this works. They only make $1 billion if the fund makes $5 billion that year. So they aren't taking anything from the fund. They are investing the money wisely, growing it, and sharing in the gains. It doesn't get more "fair" than that.
- tluyben2 10y agoSharing the gains... If one guy makes $1 billion that is called sharing? I don't misunderstand how it works; I find it obscene, that's all.
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- neilc 10y ago> Pensions could've been higher if they didn't take that much out Pensions would also be lower if they were invested in funds that made lower or negative returns. The theory (right or wrong) is that the high fees charged by the hedge funds are justified because they provide better risk-adjusted returns than other investment vehicles. Hedge funds may be bad and their CEOs may be overcompensated, but it is more complicated than just "every dollar paid to Kenneth Griffin is a dollar taken from a pension fund."
- tluyben2 10y ago
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- kfk 10y agoIf they are providing their customers at least 10x that value then what's the problem? Customers decide, or do we want to go back to the Middle Ages and leave decisions up to kings? One way or the other somebody is going to manage huge wealth, I prefer the first because in this case at least that somebody is not there because of born rights. By the way, want to lower salaries of hedge fund managers? Make great startups that: 1. provide serious automated financial tools for investors; 2. make this financial stuff so that it can be used by everybody on the planet, not only by US currency holders
- danieltillett 10y agoThe same argument is what drug dealers and pimps use.
- bertil 10y agoI think the concern is over what you mean by “providing”: some would say that it seems unlikely they actually create that value as much as they confiscate it. Preventing that was what made kings popular, until we improved on who should control the police.
- teekert 10y agoI think the problem is that they generate so much money without making anything of value. They just shift money around and with that, extract money from the economy, money that represents value generated by someone who made something that other people gladly pay for. I'm probably just to poor at economics but if someone could explain the use and benefit to society of these hedge fund managers, that would be great. If they simply extract value by some complicated process of obfuscation, we should vote for a system where they don't exist.
- growse 10y agoThey literally generate value for their investors. A waiter in a restaurant is just shifting money around without 'making anything of value' - should we vote him, and the entire service economy, out of existence as well?
- adrianN 10y agoI wouldn't even know what to do with all that money. If I had just 1/1000 of Kenneth C. Griffin's 1.7 billion, I'd be more than set for life.
- philh 10y agoWikipedia gives some idea of what Griffin does with his money. For example, https://en.wikipedia.org/wiki/Kenneth_C._Griffin#Philanthropy https://en.wikipedia.org/wiki/Kenneth_C._Griffin#Philanthrop...
- cmdrfred 10y agoI'm only seeing a little under a billion there. If he had similar returns in previous years he donates less than 10 percent of his income. Many poor Catholic families give 10 percent as a tithing. While better than nothing, I find the latter contribution to be more substantial.
- whatok 10y agoStrange, most hedge fund managers do not collect much if any salary at all.
- asmithmd1 10y ago"Hedge fund manager Kenneth C. Griffin made $1.7 billion" "Mr. Griffin’s firm, Citadel, has grown from a hedge fund that managed family and pension fund money into a $25 billion firm" "Citadel’s flagship Kensington and Wellington hedge funds returned 14.3 percent over 2015." It might be true but seems incredible, that would mean he personally took 6.8% of the entire fund's capital as a salary. Not salary of course but carried interest - he only has to pay capital gains tax rate because Wall street.
- maxerickson 10y agoThe deal is often 2 and 20. 2% of the invested funds and 20% of the earnings. That lines up okay with your numbers (say he owns a big chunk of the fund, that would make up some of the difference).
- Nrsolis 10y agoKeep in mind that the 2% is there to cover the expenses of the firm and its trading costs. The 20% is the real incentive for the fund managers. Also keep in mind that they only get that if they earn more for the investors than the "hurdle rate" which is an agreed upon metric for return. Quite literally, they only get paid if you do very well in the markets. For every $10 that they grow your money, they keep $2 and you get $8.
- oarsinsync 10y ago> Keep in mind that the 2% is there to cover the expenses of the firm and its trading costs. The 20% is the real incentive for the fund managers. True to a degree, unless your AUM is growing substantially faster than your costs, at which point your fees are covering more than that already.
- whatok 10y agoAnd what almost always follows in that case is that performance starts to lag because most strategies do not scale with how well your fundraising ability happens to be.
- curiousgal 10y agoHow do you become one?
- metachris 10y agoBy starting a hedge fund.
- abhi3 10y agoWhat's the controversy here? They make what their clients are willing to pay them. Now whether they should be taxed at a higher rate is a legitimate issue but there is nothing wrong with "25 people making 12.94 billion"
- cpach 10y agoPersonally I don’t really care what hedge fund managers earn, since they don’t (directly at least) get any of my income.
- iconjack 10y agoDoes no one know what the word salary means anymore?
- qaq 10y agoComparing what an owner Kenneth C. Griffin makes to what a hired manager Jamie Dimon makes wtf?
- charlesdm 10y agoOwners get paid more than managers. The controlling shareholders of certain banks will most certainly make more annually from dividends than the management team running these companies.
- redwood 10y agoTheir tax rates should be significantly more progressive. Before the 1980s this headline would be unthinkable. Watching the apologists here justify this is Mark Twain Americana at its finest.
- balance_factor 10y agoThe capital in RenTech's flagship fund is 100% from the employees of Rentech. These guys are managing their own money. So the idea they're screwing customers on it is false, they are the customer. I think they have some other funds as well, but not the flagship Medallion fund. I did IT at a Wall Street investment bank. Jim Simons and these math and CS guys at Ren Tech made a paradise for math and CS people over there. At investment banks you make money for heirs, and as IT are treated like garbage, and their IT and quant operations are garbage at investment banks (relative to hedge funds). Rentech, DE Shaw etc. did quant math, IT infrastructure etc. right and are kicking investment banks ass. Rentech manages employee capital instead of handing it to heirs and underpaying IT and treating IT like shit and having a shitty IT infrastructure like even the top investment banks often do. So these hedge funds are demonized by traditional Wall Street, who are trying to hang some populist halo around the criticism. It would have to be a populist or liberal/soc-dem criticism, because it's certainly not some kind of Marxian criticism. Marx explained how exploitation happened in capitalism, and it's not by a bunch of machine learning gurus managing their own money figuring out how to trade commodities better than Wall Street investment banks who manage the money of heirs.
- PostOnce 10y agoNice username. I thought all these things because I never heard the other side of the story, now I'm not sure what I think. These guys aren't sitting around by themselves making money in a vacuum, they're also allegedly engaging in illegal and/or unethical financial fuckery, for lack of a better term, and obviously spending money on politicians which may or may not mean anything at all. http://www.motherjones.com/politics/2014/10/hedge-fund-taxes-superpacs-election-renaissance http://www.motherjones.com/politics/2014/10/hedge-fund-taxes... http://www.motherjones.com/politics/2012/05/hedge-fund-hedges-its-political-bets-rentech-renaissance-technologies http://www.motherjones.com/politics/2012/05/hedge-fund-hedge... Before any bias is expressed against motherjones, all I want to say is that these two articles are the only even quasi-critical voices I have seen, which also points out the timing and circumstances that surrounded the publication of the article that enamored me of James Simons: http://www.nytimes.com/2014/07/08/science/a-billionaire-mathematicians-life-of-ferocious-curiosity.html http://www.nytimes.com/2014/07/08/science/a-billionaire-math... Anyway, everything is grey and nothing is black and white. Just wanted to put something on the other side of the scale.
- fsloth 10y agoFun fact: Mr. Griffin made more than, for example, the total size of 3D modeling market http://www.marketsandmarkets.com/PressReleases/3d-mapping.asp http://www.marketsandmarkets.com/PressReleases/3d-mapping.as... (I'm not sure of the quality of the referenced link so if someone has better information please correct me)
- charlesdenault 10y agoIsn't this an issue of paying capital gains tax instead of income tax? The amount of money they earn is arbitrary. If the deal is 2/20, and the manager performs (hence the 20), they're rewarded. That seems fair to me. If you think 20% is too high, find a different fund?
- InclinedPlane 10y agoDid you read the article? Some hedge fund managers earned enormous pay even when their funds lost money.
- charlesdenault 10y agoYes. But correct me if I'm wrong, but the article says that the managers made money because their firms are so large. Thus, they earned their 2% management fee regardless of performance. Should they be regulated? Won't the market correct when investors pull their money from the fund if they continue the losses?
- whatok 10y agoOf the three firms listed in the article, two of them have had significant redemptions in the past year and one of them has returned all outside capital. This says that Och-Ziff has had $4.2bn in redemptions during the first nine months of 2015 [0] [0] http://www.bloomberg.com/news/articles/2015-12-02/hedge-funds-brace-for-redemptions-as-losses-engulf-marquee-firms http://www.bloomberg.com/news/articles/2015-12-02/hedge-fund...
- toth 10y agoThe title is incorrect and very misleading. This is not "salary" for hedge fund managers, it's total income. I couldn't find the exact breakdown, but for the guys at the top of the list, most of the income is not compensation for being a manager, it's returns for the money they had invested in their own funds. It's not a coincidence that the guys at the top of the list are the ones that manage funds that had a good 2015. To see a better breakdown look at the 2016 rich list at http://www.institutionalinvestorsalpha.com/Article/3552805/The-2016-Rich-List-of-the-Worlds-Top-Earning-Hedge-Fund-Managers.html http://www.institutionalinvestorsalpha.com/Article/3552805/T... Note the following paragraph: In a year when roughly half of all hedge funds lost money, a number of frequent Rich List members are conspicuously missing from the ranking because their funds finished in the red. So for guys previously in this list their "salary" for 2016 was negative.
- atemerev 10y agoIf it was indeed paid as "salary", the taxes are huge. No sane hedge fund manager would to this (except that there are some other direct benefits of doing this). There are many ways of avoiding paying salary (and therefore taxes). (Making money is great, I don't see anything controversial in it as long as nobody's hand is forced).
- jgalt212 10y agoDown with the oligarchs! Pension funds are a clear wealth transfer from the working class to HF/PE managers without any benefits to the working class. Fee adjusted returns are worse than index funds. HF/PE managers dodge taxes through the carried interest loophole which the "socialist" Obama refuses to close despite having the power to do so without enacting new legislation.