William Ackman, Founder and CEO of Pershing Square Capital Management, L.P., is a hedge fund manager and investor activist. According to Bloomberg, “(Pershing’s) 32.8 percent for the first 10 months of 2014, making it the No. 1 fund in Bloomberg Markets’ annual ranking of the best-performing large hedge”
He explains finance and investment in under a hour to help you get a better understanding of just what it takes to understand this often opaque and complex world.
Wealth will set us fucking free, okay? ‘Cause wealth is empowering, wealth can uplift communities from poverty, okay? – Chris Rock
On May 6th, Institutional Investors’ released its 13th annual ‘Rich List’ highlighting the top 25 earning hedge fund managers. The 2014 list saw a combined earnings of $21 billion, an increase of 50 percent from the prior year, but still comes in as only the fourth highest total in the list 13 years. This year’s list required a minimum earnings of $300 million also a 50 percent increase over last year’s minimum, had an average earnings of $846 million per manager, and saw four hedge fund managers clear the $1 billion earnings mark. The back to back champion is David Tepper, founder of Appaloosa Management, earned $3.5 billion in 2013. To put in perspective just how much he earned, Lee Hawkins reported in 2007 that all African American professional athletes in the NFL, NBA, and MLB combined earned $4 billion. A look at more recent numbers show that the top ten earning African American athletes earned $383.2 million, meanwhile the top ten hedge fund managers brought in $15.7 billion or the athletes earned $0.02 for every $1.00 the hedge fund managers earned.
A few of these hedge fund managers also left their mark in college philanthropy. Paul Tudor Jones and his wife donated $12 million to the University of Virginia according to Philanthropy.com to “create the Contemplative Sciences Center to explore the intersection between modern science and the classical medical and contemplative traditions of Tibet.” Leon Cooperman and his wife made a $25 million donation to Hunter College for their library renovations and to seed a scholarship fund. David Tepper donated $67 million to Carnegie Mellon’s business school in 2013 and Kenneth Griffin, ranked number five on the Rich List, donated $150 million to Harvard College for scholarships, the largest ever donation in the school’s history. These four donations alone in the past 12 months are equivalent to over 12 percent of all HBCU endowments combined. The $254 million between these four donations if they were their own HBCU endowment would rank tied for third among HBCU endowments and equal to almost half of Howard University’s total endowment. Yes, just these four donations.
The key thing to remember about all of these hedge fund managers is they founded and own their company. Yes, it is finance and investments, but it is also understanding that entrepreneurship and risk taking is what gets rewarded in this economic system. Far too many of us are still thinking in terms of labor and not enough of us are thinking in terms of ownership regardless of the industry. We want to graduate and get a “good” job. Nor does the business if you decide to start one have to be some social business that changes the world. The president of Hampton University owns a bottling company. It is not sexy, but it does employ a great deal of people and allows him and his wife to be financially generous to Hampton time and time again.
Our intellectual capital continues to be poorly distributed as a community. It often seems the only thing that little African American boys and girls believe they can do is entertain others. We are either singing and dancing or chasing a ball of some sort. The lack of hedge fund managers (among a great many other professions) continues to highlight our perplexing relationship to finance. We like the perks of consumption which requires money, but adverse to the real building of wealth and the vehicles like hedge funds that can create paradigm shifts. It is clear we are playing the game, unfortunately we seem to currently be playing it to lose.
Posted in Editorial
Tagged african american wealth, david tepper, hedge fund, institutional investor
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.
Posted in Editorial
Tagged african americans, david tepper, entertainers, hedge fund, institutional investor, sports
HBCU Money 