25 Hedge Fund Managers are worth 680,000 Teachers

I have no real problem with this. Hedge funds like this are good for the economy. The tax rate on them should almost certainly be higher, but that has almost nothing to do with the salaries of the fund managers themselves.

Oh, and what do you know:

It all seems like Ponzi schemes to me. What do these Hedge funds actually produce other than seeming to launder money?

From a macro perspective, hedge funds act as massive, high level infusions of money into the economy. Sometimes, it's in corporate equity, which amounts to an investment in growing companies which in turn creates a new jobs, etc - essentially, increasing the value of our economy. Sometimes, it's large investment into a developing economy, which can create cheaper consumer goods, thus freeing up more consumer dollars for use on other items. I'm not going to pretend like I have the slightest grasp of much of the hedge fund economy, but I get the basics of some of them.

More to the point, the hallmark of most hedge funds is that the manager is paid in relationship to his or her performance. So, if you're making a billion dollars a year, it's because you created a LOT of additional wealth.

However, that wealth is only being taxed at the capital gains rate, which is absurdly low. So, while the effect of a successfully run hedge fund may be net beneficial for the economy, you can easily argue that the gains made by the investors (already some of the richest people/institutions in the country) are undertaxed, based on a marginal utility approach.

Wealth.

Im not fan of hedge funds, but some of these guys have been getting their clients high single or low double digit returns consistently over the past 10+ years. And that's not averaged out...thats year by year. Most funds follow the 2 & 20 fee schedule (2% of the fund value and 20% of the profits), hence these guys making bank. With the exception of LTCM, you don't see these guys getting bailed out. The successful ones tend to do very well. The shitty ones go under left and right. Unfortunately, due to the size and various amounts of leveraging strategies they use these days, they do have the ability to swing the markets one way or another. You only need to look at the last 3 months of 2008 as a prime example.

But yeah, the lack of regulation surrounding them astounds even a pro-free market corporate fasco-racist like myself. One of my clients is a trader for Citadel (the giant) here in Chicago. Known him for about 3 or so years now and he still wont tell me exactly how they do what they do (he's forbidden from uttering a single word about any of his day-to-day activities lest his face numerous lawsuits from his employer). What I do know is that he's 27 and Citadel paid him a $300k bonus to leave his old job and literally do nothing for 6 months until his non-compete agreement expired. Then they hired him and pay him an assload. Fucker.

Carl Icahn's fund is looking at buying a controlling stake in MGM...then again, Paramount, Relativity, Universal, etc all get a large portion of their capital from hedge funds these days.

So, ah... how does one go about becoming one of these fellows? Just, y'know... for the sake of knowing.

Be Asian or Indian and get your degree in math, engineering, or physics.

I had an acquaintance who ran one...her one-two punch was being from Yale and being staggeringly brilliant. She wasn't making the type of bank talked about here, but she did retire before 30 from what I hear.

In general, if you aren't born ultra-brilliant, your best bet seem to be to study finance/math/economics at a truly upper-crust school (can't go wrong with Williams!)

I'm as shocked as anyone to be with Dr. Vivisector on this.

And LD, I defy you to prove that hedge funds have any relation whatsoever to job creation. If you'd said job elimination, outsourcing or down-sizing, I'd agree.

As much as you may not agree with them, hedge funds or their business subsidiaries do provide capital for a few different areas. Back in 2008 when traditional credit dried up, hedge funds provided a ton of loans for small businesses, for instance. They continue to be a source of funding for small businesses today. That and, as I said above, they are one of the primary sources of funding for almost every film you see these days.

You'll (maybe) remember from our economy thread that I am anti-hedge funds, but it is what it is.

Examples?

You're going to be the death of me, yt.

Hedge funds lending to small businesses while banks do not.

As for film financing, it's common knowledge.

ETA http://www.hollywoodreporter.com/hr/..._id=1002315007

Keep in mind, this article is from 2007. Hedge funds and various investments firms are how Hollywood gets probably the majority of it's money these days.


ETA again: I made it a point to meet John Miller when I was hired on with JPM in L.A during one of our functions. Homeboy has my dream job.

[source]

or... for small business's...

Hedge Funds are the devil but sometimes you have to make a deal with the devil.

I feel like Hannibal Lecter: "No, killing is incidental. What does it do, what is its nature?"

There was a period right around the same time as the predatory mortgage lending craze that any old joe off the street was being lured into the movie financing packaging world because it looked ripe for money laundering and feeding derivatives trading. Yes, there continues to be a convergence of production and investors, including hedge funds, but that's not really what we're talking about.

We're talking about investing in small business (or "growing companies" as LD posted) as a way to create jobs.

Yes, movie crews get work when a film or films get financing from hedge funds, but that isn't what I think people always imply when they make statements like hedge funds create jobs.

Any examples that aren't in movie financing?

ps. I can't believe the attitude of resigned tolerance and "necessary evil" continues to prevail. It's crazy.

Does my first link regarding funds lending to small businesses not count?

I don't think anyone here is suggesting that we should abolish all other job creation programs and let hedge funds rule the world, but the fact of the matter is that hedge funds can an sometimes do provide stimulation to the overall economy. The fact that the fund managers only do it in shooting for a 15% rate of return for investors that already have more money than God is a moot point.

Cerberus Capital Management bought Chrysler and a big portion of GMAC, along with portions of Air Canada and a couple car rental chains, but...well, that didn't pan out so well. But, I would bet they didn't do it in order to shutter Chrysler and GMAC, since their poor performance of late has essentially crippled the company.

I think it might be a load of &^%$ as it also includes breathless details about investment "instruments," is dated August 2008, and includes this line: "Hedge fund loan rates vary across the board, but are usually considerably more than traditional banks', which are 200 or 300 basis points (2 to 3 percentage points) higher than the prime rate, says Laurus Valens' Grin. That's why companies should consider traditional lending sources first, says Stratton Nicolaides, CEO of Numerex Corp etc."

Or maybe it's totally legit. But it's impossible to tell from just this piece. Nothing was as it seemed in August 2008. Remember? Those were the days when the financial meltdown was being blamed on the poor and the Community Reinvestment Act.

And I counter in that I think hedge funds can stimulate the economy of yachts, private islands and all kinds of indulgent big ticket expenses. I totally don't accept the premise that hedge funds have any kind of positive impact on the real US economy.

I agree most with Vivisector. It's a ponzi scheme around which has grown a sheen of respectability, but once you add people's pensions etc. into the pot, you are taking a criminally large bite out of the Main Street economy, an economy already reeling from the effects of short term CEO and shareholder Wall St. profitmaking (i.e. the aforementioned outsourcing, downsizing and job elimination).

Oh really? I would argue that you can't exactly close up shop and reconstitute in a third world country with a labor force of slaves in the midst of the US economic crisis. You also have to remember the amount of horse trading and blood-sucking schemes going on at that time. It's hardly a good example.

So far The Closer's Businessweek article was the closest to the mythology that has risen up around this idea that hedge funds create jobs.

It's Businessweek. Of course it's going to talk a bit about investment instruments. It's not like I posted a link from CNS or something along those lines. Disregarding this article is pretty disingenuous.

Nobody's arguing that. Rich people invest in hedge funds to get richer. Thats the way the world works. Just so happens that over the past 5 years, hedge fund managers saw a lot of opportunity in lending to businesses and financing films, to name a few examples. Theyre only doing it to make a buck, and theyll stop doing it when it no longer is profitable...but the point is that theyre doing it now, and in doing that they are technically stimulating the economy. Their motives don't mean dick in the context of this discussion.

From Reuters:

What makes you think any loans they make are anything less than fodder for derivatives? It's not easy to find any news about this fund after '08 and early '09, other than one rumor about them buying and selling shares in a company to buoy the price and news stories about one of the companies they lent to filing chapt. 11.

It's possible, but if theyre selling their fund to institutional investors who are looking for an alternative to traditional fixed income strategies, chances are theyre fine with the 12% rate of interest.

But, as I mentioned before, the motives arent the point.

I don't get the fondness here for hedge funds.

While hedge fund managers may be investing in small businesses (and that's cool to the extent it's not exploitative--read on) a LOT of the profits made by hedge funds are on arbitrage--which is barely even moving money around; it's trading arbitrary commodities (with no actual concern for the real-world value of the commodity) to skim off small profits from other peoples' trades. The whole concept of the hedge fund is that it's huge. The amount of money is so big that you can use something like arbitrage to skim off like fractions of percentages of differences in commodity values over and over and reap pretty big returns. And on the macro level, hedge funds compile enough money under autonomous enough leadership to break banks, artificially influence stock prices via single transactions, etc.--tactics, which, in my opinion, are only barely morally superior to insider trading. Both on macro and micro levels (either by virtue of arbitrage-like tactics or trading with sums of money sufficient to substantially alter commodity values), hedge funds basically skim money away from the rest of us. That this money is then taxed at a much, much lower rate only adds insult to injury and encourages such irresponsible tactics among the ultra-rich. For hedge fund managers, buying and selling shares in small businesses may simply be an extension of penny stock tactics--trading high volume low-priced commodities for immediately high gains before cashing out, which can then destroy the small business in question and leave smaller investors in the lurch.

And the movie argument is silly. The main reasons hedge funds are so associated with the film industry has nothing to do with either art or economics: rich people love being associated with the "glamorous" Hollywood lifestyle and will risk a lower rate of return than on other, safer investments for an eventual producer's credit or for the chance to party with the stars. Not that I mind... I'm sure the Medicis were self-centered assholes, too, but I appreciate the art. But it's not like hedge funds are run by selfless patrons looking out for starving artists; they're at best tax loopholes that facilitate the increasingly incestuous bond between the ultra-rich and the media elite.

According to every single post in this thread there is none.

My b, then.

I'm also just kind of mad because apparently someone here went to Williams and I got rejected off the waitlist.

pwnt

No, I just cited Williams as the model school for hedge fund managers. Didn't attend!

One point that I'm surprised has not been made until this post: A lot of Pension funds (Calpers esp) and Higher Ed investment funds (Harvard) also put a lot of money into Hedge Funds...but not all of them are getting it out! I'd love to see some stats on the failure rate of Hedge Funds over the last two years...everyone focuses on the success, but a lot of these funds are going belly up. Also a lot of funds are turning out to be Ponzi schemes...

I think thats a stretch. Off the top, I remember 3 or 4 that have been exposed as ponzi schemes over the past 2 years. That's out of the tens of thousands that exist.

Regarding the pension funds, sure as the market bottomed out many funds saw negative rates of return since 07...but thats no different than losing money in your 401k.

Thanks, yt, I....what?!

I appreciate the idea behind the funds as being able to generate capital for various ideas for businesses. But double digit return on investment on a yearly basis? That sounds amazing....and difficult to believe to be the standard for the typical fund.

It isn't.

Here is what you're looking at for your average or to be more precise, above average hedge fund.

1) It's a Ponzi scheme.
2) Insider trading
3) market manipulation

It's one of the three or a combo. You cannot have year-after-year gains like they're portraying in a legitimate business model. Now, as to the Ponzi scheme ... what I refer to here is that they started out as legit hedge funds and after a boom of other funds (options) for their clients to choose from they were pressured to continue the return on investments or risk losing their client pool. The mentality of "It will turn back around" will set in and once you're behind that eight ball, you're never getting back to legit.

As to insider trading, see Soros hedge fund as a prime example of that.

As to market manipulation, this is the more likely probability for some of the giants. You have several funds band together and with their huge purchasing power sway the market up and then pull it back down. Fortunately (for them) there are methods to make profit both on the up tick as well as the down tick. This is how a lot of profit was generated last year if you looked at the market and the volume.

Now, you could say words like "regulation" or "audit" or "investigation" but remember these guys have swelled up to represent the bulk of America's wealth and I'm not just talking about the wealthy... most government (state as well as local) pensions are managed via hedge funds as well as unions and private companies. So, if you go after them too hard and they crumble, millions of people would be affected.

I suspect that most people involved in hedge funds subscribe to the theory that there's nothing wrong with insider trading. I've read all the arguments in favor of it, and they're cute and tidy, but the irregular returns that insider trading enjoys as it occurs is pretty stark evidence against the practice. But, superior information is an advantage that certain parties will always enjoy, and I think it may be prudent to ask whether it's something we could remedy through taxation.

Most people, including teachers, are not worth what they are paid. Some rare few people are worth more then they are paid, some might even be teachers. The question might even be are some Hedge Fund Managers, or Stars for that matter worth what they are paid?

Stars are fucking magic, and therefore are paid only in wonderment.

Excessive financialization is the final stage of a global empire's evolution before the paradigm collapse, often linked to a failure to innovate in response to a new energy regime. It's more profitable to stack the cards than to reshuffle them, to use an analogy, and eventually a gust of wind whips through and scatters the entire damned thing.

If it were up to me, the salaries of teachers and hedge fund managers would be switched. Maybe then the most accomplished graduates would be drawn into a field that makes the world a better place and nurtures humanity as a whole rather than enriching a handful of greedy a$$holes (Warren Buffet excepted).

those who do, do, those who can't teach.

... those who can't teach teach P.E.

But in all seriousness, I think you underestimate the impact of teachers on society as a whole. I don't particularly relish a future of Eloi and Morlocks. Or educated gentry and dumb serfs.

nevermind

A couple of things. First, as the husband of a teacher I can say I only wish that my wife made that much and only had 20 kids in her classroom. It just doesn't happen (and she's looking at a sizeable pay cut next year thanks to the wisdom of our Arizona legislature deciding that balancing the budget means taking even more money from education).

Second, I read this story yesterday. I won't pretend to know anything about ProPublica, but the information is pretty interesting. I get that this isn't an example of how every hedge fund works, but the amount of money we're talking about can truly impact the economy in a very real way. Reading how Magnatar did business just feels evil.

How many good teachers did you even have I can count mine on one hand, from kindergarten to the end of high school. I had more good teachers in collage, but still only a handful.

I'm not going to pretend to understand hedge fund economics and how they may or may not stimulate growth, but the basic numbers in the original post are utterly disgusting and not justifiable by any stretch.

It shows.

Those who can't be original use shitty cliches.

Verra nice.

On the heels of that story I posted which nobody read, Goldman Sachs is getting slapped for being a party to exactly the same thing that Magnatar did, but through a different hedge fund. So this hedge fund issue that I didn't know existed a week ago (hedge funds purposely buying up the toxic mortgages and then betting against their own holdings in order to make money) I suddenly have heard of 2 within a couple of days.

I'd guess if 2 of them were doing it then there's a whole lot more we haven't heard about yet/won't hear about. The more I find out about this stuff the angrier I get.