Monday, April 7, 2008

Winning a lottery every day

Remember Steve Austin, the $6 million 'bionic' man ? That was supposed to be an amount of money to inspire awe in the vast majority of TV viewers back in the '70s .

Nowadays compensations for Hedge fund managers have regularly topped $1billion , for ONE YEAR's 'work' . Here's the new record, double last year's record, $3 billion .

Is one person worth $3 billion to any enterprise on earth ? Probably not, but there it is .

Most of us don't understand very large numbers (such as a $3 trillion ANNUAL federal budget !!) but their meanings become clearer when brought down to some easily understood context ... such as an hourly wage .

For those interested :

$3 billion (top Hedge Fund compensation) is 500 times the $6 million cost of a bionic man in the '70s .

$3 billion is $250 million / month .

$3 billion is $57.7 million / week .

$3 billion is $11 million / day

$3 billion is $961,500 / hour (assuming he works 60 hour weeks , for 52 weeks)

If he takes off a month to enjoy his earnings, bump everything up by another 8% or so , i.e. his hourly would be around $1.04 million / hour .

This is something we can all understand:
$11 million / day !!! Imagine winning an $11 million lottery every day for 365 days in a row !!!!

Pity the poor CEO today who gets only $30- 50 million or so ... $30 million is only 1% of $3 billion . Or to put it another way, the CEO would have to work 100 years at $30 million to get one year's compensation of this top hedge fund manager.

The hourly rate for the $30 million CEO is 1% of the Hedge Fund mgr's, or about $9,600 / hour.

Contrast this to an 'average' IT employee. The rule of thumb is that companies save $100K for every employee laid off. This is an average individual compensation, plus benefits and some other 'overhead' (room, electricity, office supplies, printing, etc) amortized per employee . A good round number to work with.

$30 million (CEO) = $100K (employee) x 300 . It would take the average employee 300 years to earn what the CEO earns in one year.

Hedge Fund mgr = $961,500 / hour (60 hour week)
CEO @ $30 million = $ 9,600 / hour (60 hour week)
Avg IT worker = $ 38 / hour (50 hour week)

April 7, 2008
Hedge Fund Managers Make Mint on Housing Crisis
Filed at 7:08 a.m. ET
BOSTON (Reuters) - Millions of Americans may be facing the prospect of losing their homes, but a handful of fund managers have become the best paid in their industry -- taking home 10-figure paychecks last year -- by betting against mortgages.
John Paulson, who ran a medium-sized fund until last year, zoomed to the top of the industry's earnings table when he took home an estimated $3 billion in 2007, double what the top earner made in 2006, according to data released by magazine Trader Monthly on Monday.
By standing conventional wisdom on its head and deciding that housing prices could decline on a national level, and that investment-grade mortgage bonds would be subject to default in record numbers, Paulson, 52, set a new record for payouts on Wall Street, industry analysts said.
Paulson's $3 billion payout is equivalent to $26 for every U.S. household (114.4 million in 2006).
This year seems to be no worse for Paulson as his Advantage Plus fund was up roughly 8 percent through the middle of March. Many other hedge funds, however, are suffering heavy losses, with industry analysts estimating the average fund lost 5 percent in the first quarter. Hedge funds often promise to make money in all markets by using tools, such as shorting, that are off limits to other money managers.
Following behind is Phil Falcone, 45, whose shrewd housing market bets at Harbinger Capital Partners netted him a $1.5 billion payout. Falcone, a former Harvard hockey star, also made headlines by demanding changes at the New York Times Co .
As a group, the 100-best paid hedge fund managers earned $30.3 billion last year, 26 percent more than they took home in 2006, the magazine reported.
Both Paulson and Falcone squeezed past Jim Simons of Renaissance Technologies and Steve Cohen of SAC Capital Advisors, perennial top earners who each took home between $1 billion and $2 billion in 2007.
Some of the previous year's top earners, however, fell far down the list and ESL's Edward Lampert dropped off completely as his investments in Sears Holdings Corp and Citigroup Inc soured last year. Citi wrote down billions on housing market losses.
John Arnold, who topped the 2006 list with a $1.5 billion payout he earned by taking the other side of a bet that felled Amaranth Advisors, made between $400 million and $450 million in 2007, the magazine reported.
Veteran oil trader T. Boone Pickens topped up his personal fortune with a $300 million to $350 million payout in 2007, a lot less than the $1 billion he took home in 2006.

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