Posts filed under “Valuation”

What’s Wrong With Billionaire Fund Managers?

An article on humongous hedge fund paydays in today’s NYTimes was quite interesting:

“The richest hedge fund managers keep getting richer — fast. To make
it into the top 25 of Alpha’s list, the industry standard for hedge
fund pay, a manager needed to earn at least $360 million last year,
more than 18 times the amount in 2002. The median American family, by
contrast, earned $60,500 last year.

Combined, the top 50 hedge fund managers last year earned $29
billion. That figure represents the managers’ own pay and excludes the
compensation of their employees. Five of the top 10, including Mr.
Simons and Mr. Soros, were also at the top of the list for 2006. To
compile its ranking, Alpha examined the funds’ returns and the fees
that they charge investors, and then calculated the managers’ pay.”

This is exactly the sort of thing that makes my liberal friends crazy. It shouldn’t, but it does.

And, I make it even worse, by pointing out to them that if they thought it through, they should have no problem with the John Paulsons, (Paulson & Company), James H. Simons (Renaissance Technologies) and George Soros (Quantum Fund) of the world. These 3 earned a neat ~$3 billion apiece last year.

And by earned, I mean these guys earned it. They have figured out how to make money for their partners and clients. Their skill sets add value. There have always been people in the world who had vast amounts of wealth — earning it legally through your own cleverness and hard work should not be a problem. Dictators, Robber Barrons Sultans, and Anti-Trust violators are a different story.

I believe it is misdirected energy to rail against that.

On the other hand, there are plenty of bad actors they should be truly upset about instead. Stan O’Neal of Merrill Lynch (MER), Chuck Prince of Citigroup (C), Robert Nardelli of Home Depot — any many, many more undeserving cads — are value destroyers. And they got paid an absurd amount of money to help destroy the very companies they were brought into run. If you have a retirement account (IRA, 401k, Pension plan) then they took money from you. That is unconscionable to me.

How did billions in shareholder money get transferred from S/H to departing schmucks?

The short answer is Crony capitalism. They have (had) do-nothing-boards who failed to watch out for the shareholders’ interest. I sit on the Boards of 2 public companies, and I am very conscious of who my constituency is. Remember, Board of Director members are elected by, and work for the Shareholders — not for insiders, not for management. Whenever a BoD cuts a deal with one of these they become diminishers of value, they are not only failing in their fiduciary duty to the shareholders, they are essentially converting corporate assets private ones for their buddies.

This used to be known as stealing . . .


UPDATE: April 17th, 2008 5:21am

I think people are overlooking something:  These guys are the top 0.01% of their industry — they ARE the Michael Jordan and Steve Jobs of their industries.

What they create are investment returns — something that many hedge fund managers do not. In fact, about 25% of funds  are dissolved each year due to poor performance and the unlikelihood of manager compensation (courtesy of the high watermark).


Wall Street Winners Get Billion-Dollar Paydays
NYT April 16, 2008

Category: Corporate Management, Valuation

Apple Now Bigger Than Citi

Category: Psychology, Valuation

Surprise: Gee! No, G.E.

Category: Earnings, Economy, Financial Press, Valuation

How Cheap Are Stocks ?

Category: Earnings, Economy, Markets, Trading, Valuation

5 Reasons Why Bank Stocks Have Not Bottomed

Category: Credit, Earnings, Employment, Valuation

Today’s Rumor: Bear Goes Belly Up (Who’s next?)

Category: Corporate Management, Finance, Investing, Valuation

S&P500 Earnings for 2007: Down -4.2%

Category: Earnings, Valuation

Barrons Review: Is the Magic back at Disney?

Category: Contrary Indicators, Corporate Management, Financial Press, Quantitative, Technical Analysis, Valuation

WTF Headline of the Day: “Dow 18,500? Believe It”

Category: Earnings, Economy, Investing, Markets, Psychology, Valuation

AIG: Don’t Try to Catch the Falling Knife

Category: Derivatives, Quantitative, Technical Analysis, Valuation