Blogging Stocks – In the never-ending discussion about whether hedge fund managers earn their keep, who better to consult than… a former Richard Nixon speechwriter? Today’s New York Timesfeatured an insightful column by Ben Stein entitled “The Hedge fund kings are rich, but will they be noble?” In the piece, Stein compared the infamous “2 and 20” compensation arrangement of hedgefund mangers (2% of net assets plus 20% of any return over a benchmark) with Warren Buffett’s salary of $100,000 with no bonus. Stein also questioned whether these hedgehogs really contributeanything to society, saying “…their social utility to the nation and to the world is hard to see when compared with the social utility conferred by an Andrew Carnegie, an Andrew Mellon, a HenryFord or a John D. Rockefeller, who genuinely built a nation and a world. Providing liquidity for different kinds of variable-rate mortgages simply does not compare, at least as I view it.”
The pithy wording of his message aside, I think that Stein may be viewing it far too simplistically. By earning superior returns for themselves and (hopefully) their investors, these managers free up cash which can be put to good use: Warren Buffett recently pledged a substantial amount of his fortune to the Bill and Melinda Gates Foundation, and even the much-maligned Dan Loeb has donated large amounts of money to Prep for Prep, which provides scholarships for inner-city kids to attend elite private schools.
