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.