(Hampton, NH June 18, 2012). Barry James Dyke, author of the new book The Pirates of Manhattan: Highway to Serfdom reports that while Main Street net worth has been pummeled, Wall Street asset managers’ compensation is soaring. In his new book, the author documents the explosion of the investment asset management business—which he calls the “asset management industrial complex” where managers are guaranteed Olympian paydays and consumers are left holding the bag with poor investment performance. www.thepiratesofmanhattan.com
The current financial report card for Main Street Americans is grim. In June 2012, the Federal Reserve reported that the median net worth of families plunged by 39% in just three years from $126,400 in 2007 to $77,000 in 2010. According to the Fed, the financial crisis, which began in 2007, wiped out nearly two decades of wealth—with middle class families bearing the brunt of the decline. This puts Americans roughly in the financial position they were in 1992. In three years, Americans saw two decades of economic efforts vaporize.
Much of Americans’ wealth resides in retirement plans managed by the asset management industrial complex (mutual funds, private equity, hedge funds, banks, etc)—which the author estimates to be a minimum $18 trillion. However, management fees eat up investor returns—creating headwinds virtually impossible to overcome. The author, citing Morningstar data, estimates that mutual fund shareholders—where most 401(k) funds resides—pay a minimum of 0.90 percent for every $10 thousand invested (and much higher when trading costs and other costs are factored in). Private equity and hedge fund managers—extract a much higher fee schedule, commanding 2 to 3% manager fee, plus 20 to 30% incentive compensation fee known as “carried interest.” [Private equity is where Presidential Candidate Mitt Romney made his fortune].
The author comments, “On a whole, investment performance from highly paid investment managers has been horrible over extended periods of time. According to Morningstar, over 61 percent of stock mutual funds have lagged the S&P 500 index over the past five years. In 2011, only 20 percent of funds beat the Standard & Poor’s 500-stock index, the worst showing for active fund manages in over a decade. Returns for private equity and hedge funds [both get much of their money from state pension funds] have been inconsistent, opaque, self-serving and hard to measure.”
However, asset managers saw their compensation soar. According to reports filed with the SEC in 2012, in reporting to go public, the private equity firm The Carlyle Group [which gets a great of investment money from state pension giant CalPERS] reported that three billionaire founders David Rubinstein, William Conway and Daniel D’Aniello reported a combined payday of $402 million in 2011. Most of this compensation was in cash dividends, where financiers enjoy a highly favorable 15% capital gains taxation rate on income.
Dyke notes while 401 (k) mutual fund investors were hammered, fund managers compensation soared.
- Gregory Johnson, CEO of Franklin Resources made $5.3 million in 2008 despite that many Franklin funds lost -16% of their value in 2008. His pay increased to $6.7 million in 2010. Johnson’s father Charles Johnson is worth $4 billion.
- Duncan Richardson, CIO of Eaton Vance of made $3.7 million in 2008 despite the family of funds losing -38% in 2008.
- Bill Miller, of Legg Mason bet heavily on financial stocks which would lose 50% in 2008. Miller made $5 million in 2008 and made as much as $30 million per year. In 2006, Miller bought the yacht Utopia, a 235 foot Feadship yacht, then the 9th largest yacht in the United States.
- Laurence Fink, CEO of BlackRock, the world’s largest asset manager—thanks to financial backing from Uncle Sam, saw his compensation increase to $21.9 million in 2011. [Fink still has a considerable way to go to the $41.8 million he got in 2007]. Robert Kapito of BlackRock made $18.3 million in 2010, up 53% from the previous year.
- Richard Weil, CEO of Janus Capital, a mutual fund company noted by Morningstar as one of the worst wealth destroyers over a decade losing -$58.4 billion for its investors, earned $20 million in 2010.
- Martin Flanagan of Invesco Ltd saw his compensation rise 48% in 2010 to $11.5 million despite Invesco share price being lower than 2008.
- Sean Healy, of Affiliated Managers took home $19.9 million in 2010 despite a share price which was 30% lower than 2007.
- Abigail Johnson and Ned Johnson, owners of privately held Fidelity Investments are worth $10.3 billion and $5.8 billion according to Forbes in 2012—making them one of the wealthiest families in America while their investors have seen half-baked performance.
The author details one of the greatest compensation crimes in 2008 when Citigroup and Merrill Lynch blew up and had to be bailed out by taxpayers for their failed cataclysmic bets in subprime mortgages. Citigroup lost $27.7 billion yet paid its top bankers $5.33 billion in bonuses. [In the same year Citigroup froze its cash balance pension plan for rank-and-file employees]. Merrill Lynch lost $27.6 billion and paid its top bankers $3.6 billion in bonuses. In 2011, Robert P. Kelly, CEO of Bank of NYMellon, a giant asset manager, got $33.8 million in severance and benefits as an exit package in 2011 just prior to the bank being sued by the U.S. Justice Department for allegedly overcharging pension clients as much as $2 billion over a ten year period. Prior to this, Kelly was CFO of Wachovia, a failed bank which is now part of Wells Fargo. Not only were the banks bailed out during the crisis, most of the mutual industry was bailed out by the Federal Reserve. For further information, contact the author Barry James Dyke at email@example.com or via telephone 603-929-7891. The author’s new book The Pirates of Manhattan II: Highway to Serfdom, The Hijacking of America’s Savings is available exclusively at www.thepiratesofmanhattan.com