When Bankers on WallStreet say they deserve their huge pay checks because they provide a service to the economy by efficiently allocating capital.
Money invested in hedge funds since 2003 would have generated a return of 18% through November, according to data compiled by Hedge Fund Research. That puts it far behind the Standard & Poor’s 500-stock index, which has generated returns of 29% over that same period, once dividends are factored in, according to Simon Lack of SL Advisor
I want you to remember that the Best Minds on Wallstreet work at the hedge funds. Now then does an 11 % loss from 2003 -2011 compared to the S & P 500 market average Really sound like efficently allocated Capital to you?
Now lets look at our once and quite possibly future GOP nominee for President Mitt’s Bain Capital Hedge fund. After all his expertise running Bain is his only qualification for the White House.
the hype surrounding Bain, investors in the firm’s biggest funds, raised in 2006 and 2008, would have been better off in a simple stock index fund.
Clear Channel Communications epitomizes all three of these issues. Bain and buyout firm Thomas H. Lee Partners bought the nation’s largest group of radio stations for $24 billion in July 2008, including $2.1 billion in equity, just in time to watch the advertising market collapse along with the U.S. economy. Loaded with $21 billion in debt and a $1.5 billion annual interest tab, Clear Channel barely earns enough to cover its interest payments and capital expenditures. And even giving it an Ebitda multiple akin to the far more profitable Disney, for example, the company is worth perhaps 70% of what Bain paid for it.
Bain’s Fund VII, a quaint $2.5 billion, which started in 2001 just before Romney’s formal exit, was Bain’s only true success of the decade, returning $4.4 billion to investors for a solid 29% internal rate of return so far,
Fund VIII has generated an 11% IRR since 2004, placing it in the lower half of funds PitchBook tracks. Fund IX has returned 2.6%: in the upper half, according to PitchBook, but badly trailing the S&P 500.
And then there’s giant Fund X, which has invested $7 billion of the $10 billion-plus raised. It’s actually lost money, according to PitchBook: specifically, -2% compared to a 14% return in the S&P over the same period.
Bain’s early good performance can be explained this way anyone can make money in a speculative bubble as the saying goes.
To which I add Connected Crony Capitalists with the inside track can make more money than the market average during a speculative bubble with their inside connections.
But Crisis is the true test of financial genius and beating the S@P 500 average never mind the top 10 dow stock average’s yearly gain is the goal in a Crisis.
Using that standard Bain fails.
Interesting note Rush seems to be sinking ClearChannel all by himself. But as long as Rush is still on Mitt’s payroll ( yes Mitt sold his stock but he gets a declining share of Bain’s profits for 10 years) we can assume that Mitt will run again as President. After all why else would Mitt be keeping Rush on the Payroll with all the advertisers he is losing?
5 years into a 10 year bet Warren Buffet bet $1 million that the S & P 500 would out perform Protege Hedge Fund Partner Ted Seides five hedge fund picks.
Fortune’s Carol Loomis reports today that Buffett’s chosen fund is up 8.69 percent, easily ahead of the hedge funds picked by Protege with their 0.13 percent average increase.
So if you had $100 invested with Warren you would have $8.69 cents profit. If you had $100 in Ted’s Hedge fund picks you would have .13 cents profit.
Maybe just maybe Hedge fund fee’s of a 2% management fee on all assets invested a year and 20% of any profits from those investments are to high? Maybe Wall Street Bankers are over paid?
Why do Retirement funds, Pensions etc hire big Wall Street firms to manage their investments often buying hedge funds when just buying an equal share of every company in the S & P 500 could get them a better return?
If you claim greater pay because you are an expert then it stands to reason you should not get paid if you can’t meet the S & P 500 average for 5? years straight.
How many politicians from Chris Christi to Rahm Emanuel want to cut pension funds because they can’t afford them without raising taxes on the rich.
But they still keep their pension funds invested in WallStreet banks which charge fees to invest the funds in hedge funds which charge much much bigger fees to fail to meet the S & P 500 average. Something anyone can do with a simple phone call to Vanguard.