A lot of little crumbs. That was how Tom Wolfe described the income stream of finance professionals in his novel The Bonfire of the Vanities.
Industrialists bake the cake, but the bankers, dealers and asset managers slice it up and pass it around. Their reward is keeping the crumbs as they drop.
For the 25 best paid hedge fund managers of 2006, those crumbs looked more like great big golden cakes. Their average income was $570 million (Rs2,394 crore), up 57% over 2005, according to Alpha Magazine.
The average was helped by three billion-a-year men: James Simons of Renaissance Technologies, Kenneth Griffin of Citadel and Edward Lampert of ESL.
But it took a cool $240 million income just to get into the top tier. Leading industrialists can’t keep up with these market titans.
The full numbers for 2006 aren’t available yet, but the average 2005 income for the top 25 bosses of US companies was $75 million.
That may sound huge to the average worker, but it is almost mediocre in the hedge fund world.
The 2006 numbers will be higher, but consultants Equilar expect only a 6% increase in the average reward for the chiefs of the top 500 companies.
Financiers have almost always made more money than producers. That’s one reason that money-lending got such a bad reputation. But the current gap seems particularly high. It is also particularly hard to justify.
Most of the great financiers of the past—Carnegie, the Rockefellers and the Morgans—made at least some of their fortunes from arranging the construction of real industrial enterprises.
In contrast, few top hedge fund managers have strayed far from the confines of the secondary markets. Those are zero-sum games, in which every winner is matched by a loser.
So one man’s large crumbs are everyone else’s slightly smaller slices.
All praise then to Lampert, who started his fortune on the trading floor, but is now trying his hand at running Sears, the US retailer.