This hedge fund made a whopping $76.9 billion in profits last year, on a portfolio of nearly $3 trillion in assets. And its track record has held up surprisingly well, even through the financial crisis.
The fund of course is the U.S. Federal Reserve, which Steven Davidoff labels a hedge fund because of the way it is leveraging its balance sheet to earn huge profits. The main difference is that the Fed can literally print its own money in the form of “quantitative easing”, so it doesn’t have any borrowing costs. And while its main purpose is not to spin a profit, the Fed has nevertheless been racking up some hefty numbers says Davidoff, in an article for the New York Times’ DealBook.
Unfortunately, those who have hedge fund jobs at this successful firm receive a “relative pittance” in compensation. The top salary class at the Federal Reserve carries a maximum of $205,570 a year. Ben S. Bernanke, the chairman of the Federal Reserve, earns $199,700 a year, while the other members of the Federal Reserve board earn $179,700. Hardly chump change compared to the average American worker. But far below what you would expect from a real hedge fund job.
Even Treasury Secretary Timothy Geithner’s old job as president of the Federal Reserve Bank of New York paid “only” $410,780. Whereas the top 25 private sector hedge fund managers made an average of $880 million each in 2010, according to data from AR: Absolute Return + Alpha magazine’s annual list. One hedge fund manager made more than the Fed’s entire 17,000 plus employees combined, according to the article, even though his hedge fund earned far less than the Fed overall.
“These disparities show that compensation, like people, is a complicated issue. People are willing to forgo earnings for prestige and other benefits like job security. And perhaps top dollar simply does not need to be as high as those in the finance industry would want you to believe,” writes Davidoff.
Would you ever consider a job with the Fed or regional Federal Reserve Banks in return for the experience or job security? Add your comments below.
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The $32.6 billion hedge-fund giant Brevan Howard Asset Management LLP emerged as one of the few firms to buck the trend of dismal returns in 2011. The firm’s $26.4 billion Brevan Howard Master Fund Ltd. returned a solid 10.8 percent for the 10 months ended Oct. 31, ranking the fund No. 20 in the Bloomberg Markets ranking of the 100 best-performing hedge funds.
In total, Brevan Howard had four best-performing funds in the top 100. The others include the $1.7 billion Brevan Howard Asia Master Fund Ltd., at No. 31 with a 7.2 percent return; the $1.3 billion Brevan Howard Multi- Strategy Master Fund Ltd., tied at No. 43 with a 5.5 percent return; and the $2 billion Credit Catalysts Master Fund Ltd., tied for No. 74 with a 3.2 percent return, according to Bloomberg.
Brevan Howard co-founder Alan Howard has a long history of avoiding risks. Over a 25-year career as a hedge fund manager, he has successfully navigated through the bond market rout of 1994, the collapse of Long-Term Capital Management LP in 1998, and the recent financial meltdown of 2008.
In fact, since inception, his Master Fund has never posted a negative calendar-year return. Its Sharpe ratio of 1.96 means that, on a risk-adjusted basis, it has generated more than four times the return of the S&P 500 Index.
“When he senses danger, he is not afraid to enforce his view very forcefully,” says Zoeb Sachee, head of European government debt agency/covered bonds at Citigroup Inc. in London, who worked with Howard at Salomon. “The speed of exit was quite remarkable.”
All the more impressive coming in a year when the average hedge fund fell 2.8 percent according to Bloomberg data (others have it pegged at even more). The success of Brevan Howard’s funds are said to be a result of the firm’s pessimistic macroeconomic outlook. While other firms were predicting a mild recovery, Howard forecast a recession, and piled investments into U.S. Treasures, U.K. gilts and German bunds for safety. This positioned their interest-rate exposure to take advantage of falling yields.
Brevan Howard’s headquarters are located in Geneva, Switzerland. It is one of several U.K. hedge fund firms to relocate there when Britain announced plans to raise taxes on top income earners.
What’s your take? Are you familiar with Brevan Howard? Would you consider taking a hedge fund job at a European firm? Add your comments below.
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