Every year, when Institutional Investor releases its “Alpha” list of the top paid hedge fund managers, it’s hard to fathom that some people actually have so much money.
This year is no exception. The two billionaires topping the list, Kenneth Griffin and Jim Simons, each earned $1.7 billion last year. Ray Dalio, who leads Bridgewater Associates, made $1.4 billion in 2015. (And we thought foundation presidents were overpaid!)
Now, if you’re a regular reader of Inside Philanthropy, you’ll know that the three men I just mentioned are all major givers. Simons and Dalio have both signed the Giving Pledge, as has another winner on this year’s list, Christopher Hohn. Which means that a good chunk of their new earnings are destined for philanthropy.
(All links in this article are to past IP coverage. See all our profiles of Wall Street donors here.)
David Tepper, who tied Dalio as number three on the list, with a $1.4 billion payday, has not yet signed the Giving Pledge. But he’s also an active philanthropist, and it’s hard to think of what else he might do with a fortune that now stands at over $10 billion, beyond giving much of it away. As a practical matter, that’s too much money to pass on to heirs and few Wall Streeters relish the thought of the IRS grabbing a chunk in estate taxes. Importantly, the wealth of hedge funders isn’t tied up in family companies, which is the case with mega-billionaires like the Waltons, Mars, or Kochs. That means this wealth can be easily converted for philanthropic use down the line without having to give up large ownership stakes in multi-generational business enterprises.
How rich will today’s hedge funders ultimately become? That’s hard to say, and it’s even harder to know how their mega-philanthropy will unfold. But consider this: Just about every hedge fund billionaire on the Forbes 400 has doubled or tripled their net worth in the past decade. George Soros was worth $8.5 billion in 2006. Now he’s worth $25 billion, according to Forbes. Jim Simons was worth $4 billion; now his fortune is over $15 billion. David Tepper’s wealth has rise from $1.4 billion to $11.4 billion. Ray Dalio’s worth has more than quadrupled since 2006, to over $15 billion. Steve Cohen has also quadrupled his net worth, despite a Federal investigation that closed his hedge fund.
It’s worth noting something else that happened during the past decade—namely, the biggest stock market crash since 1929. Some hedge funders took major hits, but it didn’t matter. Their losses were made up with later gains, which have continued at a steady pace since the recovery began.
Judging by the past, nearly all of today’s hedge fund billionaires can expect to have much, much more money in a decade or two than is now the case. Even if most these guys did no better than the S&P historic average, they’d still double their wealth every decade or so.
Another thing is that hedge fund managers never really retire from making money. They may give up active oversight of their firms, but they typically leave their money invested in them—making as much in their truly golden years as they did before. Soros and Simons are two great examples.
All this has big implications for philanthropy in the 21st century. Take Ray Dalio, who is 66. He and his wife Barbara have said they plan to give away most of their wealth, and have been ramping up their Dalio Foundation in recent years. But what does the long-term picture look like, here? Well, if Dalio doubled his wealth every 10 years, and then left the bulk of it to philanthropy in his 80s, we could be talking about a foundation with assets on par with the Gates Foundation (around $40 billion).
Or look at Soros. As I’ve explained elsewhere, Soros has been funding his philanthropy on a pay-as-you-go basis, but the bulk of his fortune is ultimately expected to endow the Open Society Foundations. It’s quite possible that if Soros lives for another decade and keeps his money invested, OSF’s assets could also one day approach those of Gates. Certainly, OSF is on track to be a much bigger foundation than Ford.
Soros is a familiar figure in philanthropy, with an established set of interests. So is Jim Simons, whose fortune will likely expand the math and science funding of the Simons Foundation.
What will be really interesting, though, is the emergence of entirely new major funders with the resources to make a huge footprint in whatever area they choose to focus. Even a relatively low-profile hedge funder like David Shaw, also an active philanthropist, now has the wealth to establish a foundation larger than Rockefeller if he so chose. A decade from now, he’ll likely be rich enough to create a foundation on par with Ford.
Again, it’s impossible to say how the new mega-giving of today’s hedge fund stars will unfold. Many may choose not to endow foundations at all, and who knows what issues will attract their money? Judging by recent giving, it will be all over the map.
The bigger picture, here, is that we’re living in extraordinary times when it comes to wealth creation at the very top of the income ladder—and there’s only one place a lot of that money is likely to go, which is philanthropy.
The latest compensation figures for top hedge funders should reinforce the point that inequality has become crazily obscene. Something needs to be done about this, starting—in my opinion—with higher tax rates on capital gains.
But I’d argue that the story of what ultimately happens to this wealth over the next century—or the next few centuries—is the bigger, more important one in terms of grasping what the new Gilded Age means for humanity.