
Hedge Funds Faced Choppy Waters in 2015, but Chiefs Cashed In - hvo
http://www.nytimes.com/2016/05/10/business/dealbook/hedge-fund-manager-compensation.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=second-column-region&region=top-news&WT.nav=top-news&_r=0
======
balance_factor
The 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
Nice 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...](http://www.motherjones.com/politics/2014/10/hedge-fund-taxes-
superpacs-election-renaissance)

[http://www.motherjones.com/politics/2012/05/hedge-fund-
hedge...](http://www.motherjones.com/politics/2012/05/hedge-fund-hedges-its-
political-bets-rentech-renaissance-technologies)

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-
math...](http://www.nytimes.com/2014/07/08/science/a-billionaire-
mathematicians-life-of-ferocious-curiosity.html)

Anyway, everything is grey and nothing is black and white. Just wanted to put
something on the other side of the scale.

~~~
whatok
I can only scream bias in the reporting given the title of the article and the
fact that Soros is in a picture with Simons and there is no mention of Soros
in the article. Unreal.

~~~
PostOnce
Yes, it's very anti-Simons, my point is until now I have heard no criticism of
either him or rentech, I just found it interesting to find any criticism at
all.

He's an interesting guy regardless, video interviews with him are often
fascinating... and he named his yacht Archimedes.

------
kfk
If 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

~~~
Scarblac
I don't believe a single hedge fund manager can personally contribute $5
billion per year in value. Some of the people in this list managed funds that
lost money, so they obviously didn't.

~~~
bluecalm
Maybe they made good decisions and lost money. Let's say I have a million to
invest. I value an expert making investment decisions with that million at
$10,000 per year. There are many others like me so the manager collects many
millions to make decisions with. They doesn't guarantee the money will be
made, they just guarantee they will make the best decisions they are able to
with that money which has higher expected return than me making those
decisions.

It's in nature of our world that very often good decisions lead to losses.

~~~
Scarblac
If they make the same decision for many customers, then you can't just
multiply the value of the work to do by that many customers. They still do the
same thing, so the value to society as a whole stays the same.

That they can multiply their earnings over all their customers, and keep this
insane income for themselves, is morally wrong and a huge bug in the way the
world currently works.

~~~
bluecalm
I very strongly disagree that it's morally wrong. Let's say I provide a
service to people for 1000$/pop. They value it at more than that and happily
exchange money for that service. I get my 1000$. I don't use almost any
environmental or public resources to perform the service (I write code or
perform massages or w/e).

The mere fact that I exist and provide those services is beneficial for
society even if I am taxed at 0%.

There are of course issues if I have a monopoly or if I am extracting rent
from what should be a common good (say natural resources of crucial piece of
land) or if I am polluting while providing my services. There are also issues
if what I do hurt others but they are or unrelated to the fact that I create
wealth for myself. How is it wrong? What moral principle are you using to say
it's wrong? My reasons are quite straightforward: by providing sought for
services I am increasing my and my customer's happiness while not hurting
others in the process. It's a win-win, the more I provide the more insanely
win-win it is even if I collect a trillion dollars in the process.

~~~
Scarblac
I know my opinion on this sort of thing isn't exactly popular, but I just feel
that it is morally wrong for one person to have so much wealth that he can
afford to control the entire output of a huge number of people over their
entire working lives.

~~~
bluecalm
I think it is quite popular. I also think it's misdirected. There is a lot of
wealth which was built unfairly/abusing others/exploiting resources which
should be a common good. Those are real problems. On the other side someone
who is not abusing anything and just providing services to people is just net
win for everyone.

>>he can afford to control the entire output of a huge number of people over
their entire working lives.

That's vast majority of working Americans. Make 100k USD in few years and you
are able to control a lot of lives around the world, not only output of their
work. Buy a nice car, a Macbook and some clothes and you have just controlled
output of more than one whole working life.

------
toth
The 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/T...](http://www.institutionalinvestorsalpha.com/Article/3552805/The-2016-Rich-
List-of-the-Worlds-Top-Earning-Hedge-Fund-Managers.html)

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.

------
iconjack
Does no one know what the word _salary_ means anymore?

------
qaq
Comparing what an owner Kenneth C. Griffin makes to what a hired manager Jamie
Dimon makes wtf?

~~~
charlesdm
Owners 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.

------
abhi3
What'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"

------
asmithmd1
"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
The 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
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.

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
> 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
And 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.

------
adrianN
I 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
Wikipedia gives some idea of what Griffin does with his money. For example,
[https://en.wikipedia.org/wiki/Kenneth_C._Griffin#Philanthrop...](https://en.wikipedia.org/wiki/Kenneth_C._Griffin#Philanthropy)

~~~
cmdrfred
I'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.

------
curiousgal
How do you become one?

~~~
metachris
By starting a hedge fund.

------
fsloth
Fun fact: Mr. Griffin made more than, for example, the total size of 3D
modeling market
[http://www.marketsandmarkets.com/PressReleases/3d-mapping.as...](http://www.marketsandmarkets.com/PressReleases/3d-mapping.asp)
(I'm not sure of the quality of the referenced link so if someone has better
information please correct me)

------
jgalt212
Down 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.

------
atemerev
If 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).

------
cpach
Personally I don’t really care what hedge fund managers earn, since they don’t
(directly at least) get any of my income.

------
charlesdenault
Isn'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
Did you read the article? Some hedge fund managers earned enormous pay even
when their funds lost money.

~~~
charlesdenault
Yes. 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
Of 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-
fund...](http://www.bloomberg.com/news/articles/2015-12-02/hedge-funds-brace-
for-redemptions-as-losses-engulf-marquee-firms)

------
redwood
Their 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.

------
whatok
Strange, most hedge fund managers do not collect much if any salary at all.

------
danieltillett
Seems 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
Please detail how hedge funds exploit pension funds.

~~~
tluyben2
Pensions 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)?

~~~
neilc
> 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
"every dollar paid to Kenneth Griffin is a dollar taken from a pension fund."
=> I know it's not that black and white, but they could take a smaller cut /
lower fees etc which then, in a lot of ways, would be shared in a fairer way
than this. I know it doesn't work like that and there is nothing to do about
it at the moment, but that is what I would have against this.

