By William A. Foster, IV
Wealth will set us fucking free, okay? ‘Cause wealth is empowering, wealth can uplift communities from poverty, okay? – Chris Rock
This past week Institutional Investor’s released its annual ‘Rich List’ of highest paid hedge fund managers of 2013. These 25 gentleman earned a combined $14.14 billion in 2012. Yes, that was billion with a B. Just to make the list a hedge fund manager had to make $200 million in the recorded fiscal year. The median earning according to Institutional Investor was $350 million. The king of the list was David Tepper, the hedge fund manager who once in 2011 accidentally left his ATM receipt (shown below) showing $100 million in his savings account, earned $2.2 billion. Yes, in one year David Tepper earned more money than what is in the combined coffers of all 100 plus HBCU endowments. Yet, the list in its twelve years has never had an African American present on the list.
What is a hedge fund? According to Investopedia, it is an aggressively managed portfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating high returns. Legally, hedge funds are most often set up as private investment partnerships that are open to a limited number of investors and require a very large initial minimum investment. Investments in hedge funds are illiquid as they often require investors keep their money in the fund for at least one year.
The minimum investment most hedge funds require varies between $500 000 to $1 million. More established hedge funds can have even higher minimums. Hedge fund managers are able to make a tremendous amount of money because of the industry unwritten rule called 2 and 20. This refers to hedge fund managers charging a 2 percent fee on investments in the hedge fund and receiving a 20 percent cut of all profits generated by the fund. To say this is a lucrative rule, one only needs to look at the list of earning by the top hedge fund managers. If a hedge fund gets 10 investors (individuals or institutions) to invest $1 million each to create a $10 million pool before any investments are even made the 2 percent rule has generated $200 000 in fees for the manager. Assuming the fund turns than $10 million into $110 million then the hedge fund manager would receive $20 million for a total of $20.2 million in earnings. As long as the hedge fund produces its promised returns then investors will continue to pour money into it.
African America’s top ten earners from 2012 were in the fields of sports and entertainment combing to earn approximately $700 million or an average of $70 million a piece. Meanwhile, the top ten earners for hedge fund managers over that same period earned a combined $10.1 billion or an average of $1 billion a piece. This means that the income gap that exist between African America exist even in the upper echelons. In this case, African America’s top ten earned $0.07 for every $1.00 European America’s top ten earned.
The reality that all of African America’s top earners are still represented by being labor of the sports and entertainment industry (minus Oprah Winfrey) continues to highlight some very disturbing social trends and economic miseducation of what really constitutes wealth and power. Hedge fund managers not only control their own wealth but often the wealth of families, other wealthy individuals, institutions (like college endowments), and the ability to dictate the actions and operations of entire companies. If they miss a proverbial “shot” it can wipe out entire communities and families. Therefore, they are afforded a great deal of power within the realms of finance and society. On the other hand if LeBron James misses the game winning shot in the 7th game of the NBA championship its impact is minute at best.
It is time we become more strategic and provocative about our placement of our intellectual capital versus physical capital. We promote education and intellectual development as our upliftment and yet at the apex we continue to see those who will entertain in different forms and fashions reaping rewards whose ripple in terms of power for the African American community is miniscule at best. If there is an assumption that we are closing the gap it is because we would rather put on rose colored glasses than look at the reality – one man makes 300 percent of our ten highest earners. Unfortunately, even roses have thorns.
2% of 10 million is not 2 million. Good points though, sad times.
Thank you for the support….and the catch.
Awesome article. I’ve always understood the discrepancy you’ve discussed in broad terms but didn’t know to what extent it exists, pretty crazy stuff.
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My goal is to be on this list. Watch this space.
what you doing to get on the list, you into finance?
This article was extremely educational on different levels…..my first ask is whether any African American owned and operated Hedge Fund companies exist………..or African American Hedge Fund Managers exist………..This could be the key for economical development of African Americans …..waiting to here from the conscious African American community
Yes, I know of a hedge fund manager, who is African American.
Greetinwgs Dee , is the Hedge Fund manager willing to entertain a discussion on how hedge funds can benefit the community of African Americans who are engaged in various types of business. However these entrepreneurs have no working knowledge of how Hedge Funds and business can be mutually beneficial.