Tuesday, April 10, 2007

A Billion-Dollar Year for Top Hedge Fund Managers

A harsh truth of the hedge-fund world is that someone’s painful loss is usually someone else’s big gain.

Case in point is John Arnold of Centaurus Energy in Houston, who took home an estimated $1.5 billion to $2 billion last year because his fund’s bets on the direction of natural-gas prices paid off, according to Trader Monthly’s latest ranking of top-paid hedge fund managers. Mr. Arnold, a newcomer to the list, appears to have been on the winning end of the ill-fated trades that triggered billions of dollars in losses at Amaranth Advisors over just a few days last fall, eventually forcing that hedge-fund firm to shut down.

The energy trades helped Mr. Arnold deliver a whopping 317 percent return before fees to investors in his fund, the magazine said.

Hedge funds are lightly regulated pools of capital that use a variety of strategies to earn money for their investors, who usually include institutions and wealthy individuals. In addition to a management fee, fund managers set aside a large chunk of the profits for themselves as an incentive fee. Trader Monthly said Mr. Arnold, a 33-year-old former trader at Enron, charged his investors a 3 percent management fee and a 30 percent incentive fee.

As the Amaranth meltdown unfolded in September, there were rumors that Mr. Arnold’s fund was playing a “game of chicken” with Amaranth and its head energy trader, Brian Hunter, taking opposing views on the direction of natural-gas prices. But The New York Times, citing one person who had seen Centaurus’s trading records, reported at the time that Mr. Arnold had not taken a “directly opposite position” to Amaranth and had not booked spectacular gains during those weeks.

Even so, Mr. Arnold ranked No. 1 on Trader Monthly’s latest list, putting him above hedge fund luminaries such as James H. Simons of the Renaissance Technologies Corporation, ESL’s Edward Lampert, the veteran oil trader T. Boone Pickens and SAC Capital Advisors‘ Steven A. Cohen.

All five of the hedge fund managers earned more than $1 billion in 2006, according to Trader Monthly, which also estimated that the average pay among the 100 best-paid fund managers was $241 million.

For a point of comparison, Goldman Sachs’s chief executive, Lloyd Blankfein, the highest-paid boss on Wall Street, got a pay package valued at $54.3 million last year.

And a postscript: Despite last year’s natural-gas debacle, Mr. Hunter, the former Amaranth trader, appears to have landed on his feet. He is already in the process of pitching investors for his new fund, Solengo Capital.

http://dealbook.blogs.nytimes.com/2007/04/10/for-top-hedge-fund-earners-it-was-a-very-good-year/

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Lunch is for wimps

Lunch is for wimps
It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another.