CFABLACKBELT Wrote: ------------------------------------------------------- > CFAMaven Wrote: > -------------------------------------------------- > ----- > > John Paulson of Paulson & Co. took in a record > > $3.7 billion. Mainly by betting against > mortgage > > debt products. > > > > Top finance guy George Soros made 3 billion. > > > > What do you guys think, overpaid or deserving > the > > money due to their funds perfomance? > > > > Personally, that kind of money is disgusting. > You > > could find a cure for cancer, and you still > > shouldn’t make that much (in retrospect, the > > researcher who does find it will probably make > a > > six figure salary only…) > > > Ok so he made 3.5Billion… if he lost 3.5Billion > would you feel that we should “help him out” b/c > he lost that money??? > > Seems kindof ridiculous right? He made the bad > bet (hypothetical situation) so why should we pick > up his slack? > > O wait, I forgot theres a double standard. As I mentioned earlier he makes his salary from a small management fee (typically 2%), and how much his funds profits (typically 10-20%). If his fund lost a lot of money, he would not lose money, he would still get a salary from the management fee, it just won’t be that much. (Im not taking into account if he invests his own money - thats another issue altogether)
If you find a cure for cancer, you will be in the history book and you will be super famous. For some people, that’s worth more than $3.5B. But of course YMMV.
Well the issue here is how highly rewarding investors can be, but let’s imagine this hedge fund loses 3.5b next year. Does Paulson have to pay back his bonus? No. Paulson can have one good year out of 30 and still be a billionaire, while a researcher making substantial progress towards finding the cure for cancer won’t even make a few million dollars in his/her entire career. It’s not just about capitalism, but about the strange relationship between hard work and compensation.
so are we talking about whether the compensation structure itself is fair? not about whether we think he deserves that much money? well, no one forced these investors to give him their money. they chose to give it to him because they thought the compensation he could/would receive was worth it. maybe it was, maybe it wasn’t. if enough investors said “hey, we don’t like the comp structure, so we’re only going to invest in this one that pays x, which is much lower than y.” it will change. until then, it probably won’t. i mean, why would it change? how many of us would voluntarily earn less money just because we think we earn too much? those of you who raised your hands are free to go start a hedge fund and take as much business as you can away from those that charge more.
mlh, I can’t remember the reason exactly for this, but I learned about this in my investment banking and private equity class in college. Basically, hedge fund fees operate sort of like a cartel–basically, the fee structure is pretty set. It’s either an unwritten rule or an actual “rule.” I can’t remember how it works (it’s been almost 2 years), but it’s something I walked away with. EDIT: I think it’s something along the lines of getting blackballed in the industry if you try to compete on price.
i’ll be honest i don’t work in the industry. but who would blackball them? investors? broker dealers?
Pricing in the industry is much more varied than you may initially believe. Lots of funds will offer discounts on the management fee in exchange for long lockups. Also, while a 20% promote is still standard, there are a variety of hard and soft hurdle rates. And of course you have the best funds increasing their fees, so plain ol’ 2/20 actually looks like a discount. Bastards. (I call them bastards out of pure jealousy, and nothing else).
dezert Wrote: ------------------------------------------------------- > Well the issue here is how highly rewarding > investors can be, but let’s imagine this hedge > fund loses 3.5b next year. Does Paulson have to > pay back his bonus? No. > > Paulson can have one good year out of 30 and still > be a billionaire, while a researcher making > substantial progress towards finding the cure for > cancer won’t even make a few million dollars in > his/her entire career. It’s not just about > capitalism, but about the strange relationship > between hard work and compensation. dezert, you hit the nail on the head.
i don’t really see what dezert’s point is. is it that he think’s paulson’s investors paid him too much? shouldn’t that be a question for the investors? no one forced them to give him their money and agree to whatever they agreed to. is it that he thinks compensation should be more closely alligned with hard work?compensation is related to several things. it’s related to hard work, luck, how others value what you’re doing, relationships/contacts, intelligence, and a myriad of other skills. not one of them will be enough by itself to drive compensation. you could be the hardest working pile-of-dirt mover around, but if no one values moving piles of dirt, that hard work won’t be reflected in your compensation. you could have the best list of contacts, but if people soon realize you’re dumber than a brick, you won’t make much money. so effectively are you saying that because you don’t think paulson worked hard enough he doesn’t deserve what he got?
Are his clients complaining? I think not because they all made a lot of money as well and know about the performance fees. This is what we call a win-win situation. Compliments to his investors and the guy himself. Had he been losing money, his investors would not be paying the performance fee and lots of them would withdraw their money from him. That’s life.