COMMENTARY
Hedge funds
(Morguefile.com)

(Editor’s Note: NonDoc believes in creating a responsible forum for the rational and respectful discussion of topics and ideas. As such, we run Letters to the Editors of 300 words and reserve the right to edit lightly for style and grammar. To submit a letter for publication, please write to letters@nondoc.com. We simply require your name, the town in which you live and your contact information.)

To the editors,

Hedge funds are one of many types of speculative trading that endanger the worldwide financial system.

A hedge fund is a private-investment vehicle, operating as a limited partnership, that invests in debt, complex derivatives, stocks, bonds, options and commodities.

Hedge fund managers often enjoy astonishing payouts, some in excess of a billion dollars in a year.

But just how much is a billion dollars, and does this investment practice have an undesirable effect on our society?

One billion expressed numerically is 1,000,000,000. A billion is one thousand times larger than a million.

We can factor the product of one billion into two interesting numbers that, when multiplied together, make one billion.
Fifty-thousand times 20,000 equals 1 billion (or 50,000 X 20,000 = 1,000,000,000).

If we put a dollar sign on the 50,000, it equals about the average annual salary in the U.S. We can now see that 20,000 workers making $50,000 per year make a total of $1 billion, an amount similar to the yearly take of some hedge fund managers.

In 2015, some actual hedge fund managers made the amounts shown in the table below. As a group in 2015, the top-25 hedge fund managers made a total of $12.94 billion!

2015 hedge fund managers’ earnings

RANK NAME FIRM 2015 EARNINGS EQUIVALENT NUMBER OF JOBS THAT CONTRIBUTE TO SOCIETY*
1 Ken Griffin Citadel $1.7B 34,000
1 James Simons Renaissance Technologies $1.7B 34,000
3 Raymond Dalio Bridgewater Associates $1.4B 28,000
3 David Tepper Appaloosa Management $1.4B 28,000
5 Israel Englander Millennium Management $1.15 23,000
—————— Top 25 Hedge Fund Managers $12.94B 258,800

(*”Jobs” defined as making $50,000 per year and adding value with a useful product or service. “Equivalent number of jobs” per year calculated by dividing 2015 hedge fund earnings above by $50,000; source)

The table illustrates how these kinds of financial transactions can take a heavy toll on overall employment and our society. Unlike investing for the long-term, hedge funds use high-speed networks to make frequent trades. The data strongly suggest that, in 2015, a mere 25 hedge funds employing perhaps a few hundred people extracted enough money from our economy to pay over a quarter-million workers for a year.

And it gets better: Hedge funds are permitted to reduce their taxation by using carried interest, meaning the earnings are taxed as long-term capital gains at 20 percent. The top tax rate for ordinary income is 39.6 percent and starts at taxable incomes from approximately $415,000 to $467,000.

More recently, a common practice for hedge funds is to set up a reinsurance business in Bermuda to further reduce tax obligation.
Reinsurance is insurance purchased by an insurance company from one or more other insurance companies as a means of risk management.

Clearly, all such financial activity is enabled by politicians and inept regulators.

Bill Arnold
Nichols Hills

  • Letters to the Editors

    To submit a Letter to the Editors for publication, please include your name and city of residence in writing to letters@nondoc.com. Please limit letters to between 300 and 500 words.

  • Letters to the Editors

    To submit a Letter to the Editors for publication, please include your name and city of residence in writing to letters@nondoc.com. Please limit letters to between 300 and 500 words.