The disastrous implosion of Nick Maounis”™ Greenwich hedge fund Amaranth Advisors last year drew irresistible comparisons to the 1998 collapse of John Meriwether”™s Long Term Capital Management.
As it turns out, Meriwether had a heck of a lot better year in 2006.
The JWM Partners founder has scratched his way onto the list of the top 100 traders in the world, according to Trader Monthly”™s annual Trader 100 list being released this month that estimates compensation in 2006.
Thirteen more traders in Fairfield County made the list. They include both local fixtures such as SAC Capital Advisors L.L.C.”™s Steven Cohen, as well as first-timers, such as Cohen”™s global macro portfolio manager Ping Jiang.
Combined, those 13 traders raked in more than $6 billion last year by Trader Monthly”™s most conservative estimates. Using the magazine”™s most auspicious guesswork, their income may have approached the $8.5 billion in combined profits produced last year by GE Commercial Finance and GE Money, which together employ more than 3,000 employees in Fairfield County where they are based.
In all, 26 traders from Fairfield County have appeared on the Trader Monthly list the past three years, amassing an incredible $16 billion by the most conservative estimates. Three more traders who worked for local hedge funds in other cities add more than $600 million more during that period ”“ though the group includes the now infamous Brian Hunter, the Amaranth trader in Edmonton, Alberta, whose energy bets doomed the firm.
The incredible growth exhibited by hedge funds is being driven in part by acceptance of their role by pension investors, according to a new report by Boston-based State Street Corp.
“Hedge funds are becoming less ”˜alternative”™ all the time,” State Street Vice Chairman Joseph Hooley said in the report. “There is now a more full-fledged understanding of not only the risk/reward opportunity of hedge funds, but also the role they can play in reducing return volatility across a portfolio.”
While past risks allowed by hedge fund managers like Maounis and Meriwether have shaken the financial markets, spawning talk of more regulation, the rewards have been ample for Fairfield County residents, where salaries even for financial and even low-level administrative personnel have rocketed upward due to the dollars brought to bear by hedge funds.
Â
SAC alone employed 700 employees as of February and Connecticut economists estimated last month that the hedge fund industry likely employs thousands of people in Fairfield County.
What”™s more, as traders claw their way into the ranks of the best-compensated in the industry, they are leaving to establish their own funds. After making at least $25 million by Trader Monthly”™s count in 2004, Mark Fishman hooked investors onto his own fund, Sailfish Capital.
Trader Wayne Holman made $40 million at SAC in both 2004 and 2005 and left to start a fund called Ridgeback Capital.
SAC has also attracted established talent ”“ after Peter Abramenko received a $17 million bonus from UBS in 2003, he left for SAC where he likely made between $30 million and $40 million the following year.
It is enough to retire on ”“ but State Street predicts that the 2006 Pension Protection Act will push additional money to hedge funds, as portfolio managers attempt to project liability benchmarks in compliance with the law.
In Europe, where pension reform has already occurred, hedge funds have doubled their market share since 2002 to 21 percent of the industry”™s total assets under management, according to a new report from International Financial Services.
In other words, there is more than enough money floating around for Maounis to attempt to follow in Meriwether”™s footsteps.
Â
