Greed is not good. That is the clear and unequivocal message delivered by the public outrage following news in mid-March that troubled AIG had paid $165 million in bonuses to employees at its financial products subsidiary — the very group that had been responsible for creating and managing the derivative securities that led to AIG’s massive losses last year and the U.S. government’s $170 billion bailout of the insurance giant. In a letter to AIG chief Edward Liddy, Virginia Senator Mark Warner, a Democrat, called the bonuses “not only morally reprehensible, but entirely indefensible” and demanded that AIG recoup the payments from its employees, threatening that if it didn’t do so lawmakers would impose a steep tax on the bonuses that would have the same effect.
Iowa Senator Chuck Grassley, a Republican, demanded harsher retribution. He said in a radio interview that AIG executives should follow the example of the Japanese: “Come before the American people and take that deep bow and say, ‘I’m sorry,’ and then do one of two things: resign or commit suicide.” Although Grassley later clarified that he hadn’t really meant to suggest that the executives should commit hara-kiri, he didn’t hide his utter disgust with the situation. “It’s irresponsible for corporations to give bonuses at this time when they’re sucking the tit of the taxpayer,” he said at a press meeting.
I can’t wait to hear what Grassley will say when he picks up this issue of Alpha, which contains our annual ranking of the world’s highest-earning hedge fund managers. The 25 people on this year’s list took home a combined $11.6 billion in 2008, the third-largest total in the eight years that we have been compiling our ranking. That’s an average of $464 million per manager, nearly three times the size of the AIG bonus payments that have drawn the ire of Washington.
Lawmakers, however, would have a hard time arguing that the folks in our ranking didn’t earn their performance stripes in 2008. As Senior Contributing Editor Stephen Taub chronicles in “Brother, Can You Spare a Billion?”, most of the managers on our list delivered impressive double-digit returns in what was, and continues to be, a brutal market. In fact, the majority of hedge funds lost money last year, which is reflected in the results of our third annual Hedge Fund Compensation Report (“That Shrinking Paycheck”). As Staff Writer Imogen Rose-Smith recounts, most hedge fund executives saw their compensation — especially their bonuses — drop significantly in 2008.
So much for being greedy.
