Hedge fund managers get billion-dollar paydays
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Hedge fund managers, those masters of a secretive, sometimes volatile financial universe, are making money on a scale that once seemed unimaginable, even in Wall Street’s rarefied realms.
One manager, John Paulson, made $3.7 billion last year. He reaped that bounty, probably the richest in Wall Street history, by betting against certain mortgages and complex financial products that held them.
Paulson, the founder of Paulson & Company, was not the only big winner. The hedge fund managers James Simons and George Soros each earned almost $3 billion last year, according to an annual ranking of top hedge fund earners by Institutional Investor’s Alpha magazine, which comes out Wednesday.
Meanwhile, here’s what these robber barons have done last year:
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Merrill Lynch & Co. posted its third-straight quarterly loss Thursday and said it would cut another 4,000 jobs, as damage from a poorly managed plunge into risky credit-market activities under its previous chief executive continued to hurt the U.S. broker.
The loss of $1.96 billion, or $2.19 a share, was driven by $6.6 billion in write-downs related to mortgages, complex securities called collateralized debt obligations, and loans made to junk-rated companies. Merrill wrote down another $3.1 billion in mortgage-related securities held at its U.S. banks, though that hit for accounting reasons only showed up on the broker’s balance sheet.
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Merrill’s loss would have been a lot deeper had it not been for a $2.1 billion gain booked on the declining value of the bank’s own debt. The move, while counterintuitive, is a legitimate quirk of mark to market accounting. Merrill’s Wall Street peers also book such benefits, though Merrill’s was unusually large.