Household income is affected by a variety of factors, such as population aging and household composition. U.S. real (inflation adjusted) median household income was $51,939 in 2013 versus $51,759 in 2012, essentially unchanged. However, it has trended down since 2007, falling 8% from the pre-recession peak of $56,436. It remains well below the 1999 record of $56,895. This long-term decline in income is troubling to economists, especially as the middle and lower classes have fared considerably worse than the rich. Since 1967, Americans right in the middle of the income curve have seen their earnings rise 19%, while those in the top 5% have seen a 67% gain. Rising inequality is seldom a sign of good social stability. [Source] [Source]
Wall Street and the top of corporate America are doing extremely well as of June 2011. For example, in Q1 of 2011, America's top corporations reported 31% profit growth and a 31% reduction in taxes, the latter due to profit outsourcing to low tax rate countries. Somewhere around 40% of the profits in the S&P 500 come from overseas and stay overseas, with about half of these 500 top corporations having their headquarters in tax havens. If the corporations don't repatriate their profits, they pay no U.S. taxes. The year 2010 was a record year for compensation on Wall Street, while corporate CEO compensation rose by over 30%, most Americans struggled. In 2010 a dozen major companies, including GE, Verizon, Boeing, Wells Fargo, and Fed Ex paid US tax rates between -0.7% and -9.2%. Production, employment, profits, and taxes have all been outsourced. Major U.S. corporations are currently lobbying to have another "tax-repatriation" window like that in 2004 where they can bring back corporate profits at a 5.25% tax rate versus the usual 35% US corporate tax rate. Ordinary working citizens with the lowest incomes are taxed at 10%. I could go on and on, but the bottom line is this: A highly complex set of laws and exemptions from laws and taxes has been put in place by those in the uppermost reaches of the U.S. financial system. It allows them to protect and increase their wealth and significantly affect the U.S. political and legislative processes. They have real power and real wealth. [Source]
September 28, 2014
After the unending media coverage of the fiscal cliff throughout December 2012, it was a relief to everyone when a last-minute compromise was reached. In particular, the most reported-on compromise had to do with the extension of the Bush-era tax cuts. Those cuts will remain in place permanently for any individual making less than $400,000 per year, and for couples earning less than $450,000. Those fortunate few who make more than that amount will see their rates rise from 35% to 39.6%.
The news about this particular tax rate increase got me wondering: what professions can expect to earn that kind of money? Since I don’t personally know anyone bringing home $400,000 per year, I decided to find out what kind of jobs command such high salaries:
1. The President
Perhaps the most famous $400,000 per year job is the leader of the free world. The office of president not only pays a $400,000 annual salary, but also provides the president with a $50,000 annual expense account, a $100,000 nontaxable travel account, and a $19,000 entertainment account.
There are some obvious downsides to this particular career, however. Besides being very difficult to get, the job is highly stressful, and advancement post-office can be considered somewhat iffy. And, of course, you can’t expect regular raises: the last salary increase for the commander-in-chief (from $200,000 to the current rate) was in 2001. Prior to that, the previous raise (from $100,000) occurred in 1969.
2. Surgeons and specialists
Even a local general practitioner can expect to pull in over $100,000 per year, but the real money in medicine is reserved for those who specialize. Anesthesiologists, heart surgeons, and brain surgeons can all expect to make up to $400,000 per year at the height of their career. Plastic surgeons can make up to twice that amount.
The median salary of a Chief Executive Officer is over $700,000. These directors are in charge of both short- and long-term profitability for their companies. CEOs generally have to know the industry backwards and forwards (although there are certainly plenty of counter-examples), and need to have worked their way up over many years.
4. Wall Street Bankers and Lawyers
If you work in either finance or finance law, the place to go for fat paychecks is Wall Street. According to an October 2012 report, “the average salary of financial industry employees in New York City rose to $362,950 in 2011.” While that still falls short of the mark required for the higher tax bracket, it’s important to remember that this figure represents the average (meaning some people are making more) and that there have almost certainly been raises in the past year and a half.
The Top Percent of the Top Percent
These high-income earners are really rare. Consider the fact that most articles listing the highest paying jobs in America don’t even include any professions with median salaries of $400,000. Those individuals making $400,000 per year are in the top one percent
Thankfully, even though individuals in this bracket are few and far between, the government estimates that raising the tax rate on this small group will raise about $600 billion in new revenues over the next decade.
Not bad for a group that small.
August 1, 2014
C. Wright Mills’ 1956 classic work, The Power Elite, only mentions “investment banker” one time, never refers to “Wall Street,” talks about wealth as a measure of personal freedom, but mentions millionaire” only once and never “billionaire.”
In the 1950s the Power Elite were CEOs of old industrial and consumer product companies like General Electric, boards of directors, generals, admirals, Social Register types like the Vanderbilts and Ivy League social clubs and fraternities. There was no such thing as the Forbes 400 list or Occupy Wall Street or Too Big to Fail Banks. There was a Power Elite, but a far more quaint Power Elite.
“The families of about half of the 1950 executives settled in America before the revolution,” Mills claimed in his trail-blazing work about “men whose positions enable them to transcend the ordinary environments of ordinary men and women.”Today’s Power Elite are the CEOs of major financial institutions, like Jamie Dimon of J.P.Morgan Chase and Lloyd Blankfein of Goldman Sachs. They are the band of Private Equity plutocrats like Apollo’s Leon Black, who took home $560 million last year, or Blackstone’s Steve Schwartzman or KKR’s Henry Kravis or Carlyle’s David Rubinstein. Not to speak of the dozens of Hedge Fund billionaires like George Soros and the activist investor band, about whom the financial media are positively giddy.
They are the very top echelon of the 300,000 wealthy investors who make up the 1/10th of 1% of America who collect each year over 60% of the capital gains, taxed at far less than ordinary income.
They use their influence to block attempts to limit the leverage of large financial institutions, to maintain the favorable carried interest tax treatment, and to prevent Elizabeth Warren from becoming head of a new consumer finance oversight organization.
Today’s Power Elite are the vanguard of the “economic elites and organized groups representing business interests (that) have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence,” according to one academic study, Testing Theories of American Politics: Elites, Interest Groups, and Average Citizen by Martin Gilens, a Princeton professor and Benjamin Page of Northwestern. (Soon to be published.) This claim of policy implementation by powerful groups follows in the tradition of the Winner Takes All Politics of Jacob Hacker and Paul Pierson that stirred up controversy some years ago.
By now the nation has woken up to the power of campaign contributions and lobbying money as attributes of today’s Power Elite as confirmed by the Supreme Court decision Citizens Union, which allows unlimited funds to be contributed on issues of concern to the business community. Nevertheless, Elizabeth Warren, the populist candidate for Massachusetts Senator, won election going away with the support of labor, women and other ethnic and interest groups that did not fear her desire to break up the largest financial institutions.
Contrary to the popular view that 1% of America is gaining almost all the wealth created in the 21st century comes the discovery by economist Gail Fosler that “the overwhelming share of wealth in America is held in owner-occupied housing and retirement-related assets.” Sure, we have a small class of the super rich whom we celebrate for the most part. But, writes Fosler in her Financial Dynamics & Stability brief, “things are not as unequal as they seem. Retirement needs are one possible reason that this remarkable accumulation of wealth has not resulted in a boom in inheritances.” Wealth, Fosler has ruled, “is a necessary evil, one that we not only need more of but which we need to understand better.”
January 17, 2012
But what about the rest of the private equity industry?
Sure, Bain is big player.
With $29.4 billion in capital raised, if Bain were included on our list, it would be the 7th largest PE fund.
With Bain news flooding out at a torrential rate, we thought we'd take a step back and look at the other biggest players in the industry.
Note: all capital raising data is as of April 2011 and sourced from Private Equity International
Headquarters: Fort Worth and San Francisco
Leadership: David Bonderman, James Coulter and William S. Price III
Notable deals: J. Crew, Petco, Burger King, SunGuard, Neiman Marcus, Freescale Semi, Harrah's Entertainment, Alltel, TXU, Washington Mutual
Goldman Sachs Capital Partners
Capital Raised: $47.22 billion
Headquarters: New York
Leadership: Rich Friedman, head of Goldman's Merchant Banking Division
Notable deals: Burger King, SundGard, Alltell Wireless, Biomet, TXU
The Carlyle Group
Headquarters: Washington, D.C.
Leadership: William E. Conway, Jr., David M. Rubenstein, Daniel A. D'Aniello
Notable deals: Dunkin Brands, United Defense Industries, Allison Transmission, HCR Manor Care, HD Supply (Home Depot's wholesale construction supply company)
Bush Family and the Carlyle Group
Kohlberg Kravis Roberts
Headquarters: New York
Leadership: Henry Kravis, George R. Roberts
Notable deals: RJR Nabisco, Bank of New England, Regal Cinemas, Shoppers Drug Mart, Toys "R" Us, SunGard, HCA, Dollar General, Alliance Boots, TXU
The Blackstone Group
Capital Raised: $36.42 billion
Headquarters: New York
Leadership: Steve Schwarzman
Notable deals: Hilton Worldwide, Equity Office Properties, Republic Services, AlliedBarton, United Biscuits, Freescale Semiconductor, TDC, Travelport, Michaels Stores, Orangina, Biomet, The Weather Channel, Busch Entertainment Corporation, Dynegy
China invested $4 billion in Blackstone prior to its IPO
Capital Raised: $33.81 billion
Headquarters: New York
Leadership: Leon Black, Joshua Harris, Marc Rowan
Notable deals: Vail Resorts, Walter Industries, Culligan, Samsonite, Allied Waste, WMC Mortgage, AMC Entertainment, Berlitz Internation, Rent-A-Center, Wyndham Worldwide, GNC, Harrah's Entertainment, Norwegian Cruise Line, Claire's Stores, Realogy (owner of Coldwell Banker, Century 21 and Sotheby's International Realty), Linens 'n Thing
CVC Capital Partners
Capital Raised: $25.07 billion
Leadership: Michael Smith, Steven Koltes, Hardy McLain, Donald Mackenzie, Iain Parham, Rolly (Ridder) Van Rappard
Notable deals: Pilot Travel Centers, Formula One Group, Samsonite, Merlin Entertainments, Cortefiel, Leslie's Pool Supplies, C1000 Supermarkets, Nien Made (world's largest window shutter manufacturer)
First Reserve Corporation
Headquarters: Greenwich, CT
Leadership: William E. Macaulay
Notable deals: CHC Helicopter, Brand Services, Dresser Industries, Pride International, Enterra Corporation, Alpha Natural Resources, Gamesa Solar
Hellman & Friedman
Capital Raised: $17.2 billion
Leadership: Warren Hellman (deceased December 2011), Tully Friedman
Notable deals: Getty Images, DoubleClick, Gartmore, Texas Genco, Grosvenor Capital Management, Nielsen Company, Nasdaq
Leadership: Martin Halusa
Notable deals: Yell Group Yellow Pages, Travelex, Somerfield, Tommy Hilfiger Corporation, Royal Philips Electronics semi business, Thomson Learning, Bankrate
Headquarters: Greenwich, CT
Leadership: Charles F. Freeney
Notable deals: BM&F Bovespa, Compuware, E-Trade, First Republic Bank, Hewitt Associates, Lenovo, New York Mercantile Exchange, NYSE Euronext, RiskMetrics, Zagat
Headquarters: New York
Leadership: Henry Kressel
Notable deals: Avaya, BEA Systems, Bharti Tele-Ventures, Cassatt, Harbour Networks, NeuStar, Systinet, Telcordia, VERITAS Software
Cerberus Capital Management
Headquarters: New York
Leadership: Steve Feinberg, John Snow
Notable deals: Chrysler, GMAC, Albertson's, National and Alamo Car Rental, Bushmaster Firearms
Leadership: Peter Brooke, Tom Lauer
Notable deals: Poundland, Fat Face Clothing, Domestic & General Warranty, Bradco Supply, Yangzijiang Shipbuilding, Fifth Third Processing Solutions
Leadership: Kurt Björklund, Tom Lister
Notable deals: Renaissance Learning, NDS Group, Arysta LifeScience, Galaxy Entertainment Group, Valentino Fashion Group, Freescale Semiconductor, TDC A/S, Gala Coral Group, New Look
Oaktree Capital Management
Headquarters: Los Angeles
Leadership: Howard Marks
Notable deals: R&R Ice Cream, Sky Holding, Triton Media Group, AdvancePierre Foods
Terra Firma Capital Partners
Leadership: Guy Hands
Notable deals: Le Méridien Hotels, William Hill Bookmakers, EMI, Unique Pub Company, United Cinemas International, Voyager Pubs, Waste Recycling Group
Providence Equity Partners
Headquarters: Providence, RI
Leadership: Jonathan Nelson
Notable deals: AutoTrader.com, Metro-Goldwyn-Mayer, Mountain States Cable Television, Study Island / Archipelago Learning, TDC Telecom, Warner Music Group, WhitePages, World Triathlon Corporation, Yankees Entertainment and Sports Network, American Cellular, Brooks Fiber Properties, Powerfone Holdings, VoiceStream Wireless
Clayton, Dubilier & Rice
Headquarters: New York
Leadership: Joseph L. Rice, III, Donald J. Gogel
Notable deals: Uniroyal Goodrich Tire Company, Lexmark, Allison Engine, Remington Arms, Kinko's, Hertz, HD Supply
Critical of private equity? Look at what these bank executives got paid to quit.
terrific article in the Washington Post, this is not good news. Once upon a time, hedge funds earned their outsize compensation by, guess what? Hedging their investments. This risk-mitigation strategy reduced the gains when markets were up but avoided some of the losses when markets were down. Today, most hedge funds have morphed into something very different: aggressive, highly-leveraged, speculative vehicles that are desperately chasing returns to outperform their benchmarks that make huge returns for the managers regardless of the fund’s performance and end up transferring wealth from investors to hedge fund managers. [Source]
In Rhode Island, state treasure Gina Raimondo's strategy for saving public pensions involved handing more than $1 billion – 14 percent of the state fund – to hedge funds, including a trio of well-known New York-based funds: Dan Loeb's Third Point Capital was given $66 million, Ken Garschina's Mason Capital got $64 million and $70 million went to Paul Singer's Elliott Management. The funds now stood collectively to be paid tens of millions in fees every single year by the already overburdened taxpayers of her ostensibly flat-broke state. [Source]
September 28, 2014
The rich keep getting richer in hedge fund land.
A new investigation of industry assets by Absolute Return reveals that, once again, the largest funds are controlling more assets than ever.
The publication's twice-yearly Billion Dollar Club analysis, which ranks the assets of all Americas-based firms with at least $1 billion in hedge fund strategies, increased to 305 firms that managed $1.84 trillion as of July 1, up from 293 firms that managed $1.71 trillion at the start of 2014.
Bridgewater Associates remains the largest hedge fund manager in the Americas, followed by J.P. Morgan Asset Management, Och-Ziff Capital Management and BlackRock.
The largest U.S. hedge fund managers:
Two-thirds of Billion Dollar Club firms gained in size this year, with average assets up 8.38 percent in the past six months, according to AR. Interestingly, the publication found that the 50 largest firms lagged that broader growth rate, increasing assets by only 7.76 percent.
Ray Dalio's Bridgewater bucked that trend, adding more than anyone—$6.6 billion—to its hedge fund strategies in the first half of 2014. The firm also recently disclosed that it is launching a new "Optimal Portfolio" strategy that will likely push assets even higher (Bridgewater manages $163 billion overall including non-hedge fund assets).
Hedge funds of all sizes are now back past their pre-crisis peak. Global hedge fund assets now stand at $2.869 trillion as of July 1, according to a separate assessment by HedgeFund Intelligence. The previous record was $2.697 trillion in June 2008.
October 22, 2013
Hedge funds are privately controlled and notoriously secretive investment firms with billions of dollars in assets. Here's a document listing all of the income, salaries, and spending for one hedge fund over several years.
When shown the document, TPG-Axon spokesperson Mary Lee told us, "The document is not authentic, nor do the numbers make sense." Lee did not reply to a request for more specific details about what was incorrect or inaccurate about the document and its data.
private equity is once again starting to pick up. Over the past two months, U.S. private equity firms put more than $11 billion under management; while other firms are targeting another $10 billion.
Originally Published on September 2, 2009
Rothschild, the largest family-owned bank, plans to raise a 500 million-euro ($711 million) investment fund as chairman David de Rothschild’s son joins the firm, two people familiar with the plan said.
Alexandre de Rothschild, 29, moved to the family bank from Argan Capital, Bank of America Corp.’s former European private equity division, to work on the project, said the people, who declined to be identified before the fundraising is completed. Rothschild Managing Director Marc-Olivier Laurent, 57, will oversee the fund, the people said.
The two-century-old firm, which is run by 66-year-old David de Rothschild, plans to buy minority stakes in closely held companies after the pace of global mergers and acquisitions dropped 46 percent in the past year. The fund’s backers include Rothschild partners and clients. It will target companies valued at 100 million euros to 500 million euros, the people said.
“It’s normal for them to bring in family members to ensure succession,” said Anis Bouayad, founder of Paris-based advisory firm AB Conseils. “The bank has always found a way to promote its own, while also bringing outside talent to the top jobs.”Javed Khan, who joined Rothschild from New York-based private equity firm Blackstone Group LP in June, and Emmanuel Roth, a former executive at investment firm Paris-Orleans, will also manage the fund, the people said. Rothschild plans to complete the fundraising before the end of the year, they said.
‘Family is Fine’
“In a business, the key is to have the best people,” David de Rothschild said in a 2005 interview, addressing the subject of succession. “The family is fine as long as they do a good job. If they don’t, it has to be someone else.”David de Rothschild took managerial control of the U.K. side of the bank after his cousin Evelyn retired in 2004, cementing control of both the Paris and London businesses by a French Rothschild, a first for the family firm.
David’s younger brother, Edouard, stepped down in 2004 after helping to expand the French bank. Today, he oversees France Galop, the country’s horse-racing association. David’s cousin, Eric, is chairman of Rothschild’s asset-management and private-banking units and also runs the family’s Chateau Lafite vineyard.
Mayer Amschel, founder of the Rothschild banking dynasty, started out buying and selling old coins in a Frankfurt Jewish ghetto in the late 1700s and built an embryonic banking business by extending credit to clients. In the early 1800s, he sent his five sons to establish bases in London, Paris, Naples and Vienna, in addition to Frankfurt.
His great-great-grandson, Guy de Rothschild, rebuilt the French business in the 1950s and 1960s after reclaiming the bank, which had been seized by the pro-Nazi Vichy regime. In 1981, the French bank was nationalized by Socialist President Francois Mitterrand. Two years later, David persuaded the French government to grant the Rothschilds a new banking license.
Originally Published on November 21, 2006
Elite private investors are buying up major companies at a record pace in a wave of deals that is raining riches on Wall Street, but also may be raising the risk of a financial bust.
Investors led by Blackstone Group announced late Sunday the biggest takeover ever by a so-called private equity fund, a $36-billion deal to buy Equity Office Properties Trust, the largest U.S. owner of office buildings.
The proposed purchase follows announcements in recent months of buyouts that would put firms including radio giant Clear Channel Communications Inc., casino titan Harrah's Entertainment Inc., and food-service company Aramark Corp. in private hands, taking their shares off the stock market.
Takeovers are nothing new in American business, but historically the largest deals have involved companies whose shares are publicly traded buying other companies.
This year, the buyers behind the biggest deals are private equity funds -- run by generally secretive investment firms that raise money from pension funds, wealthy individuals, and other investors who are hungry for double-digit returns on their capital.
"It's obviously a boom," said C. Kevin Landry, a managing director at TA Associates, a Boston-based private equity firm. "You can raise as much money as you want" to do deals.A private equity fund typically buys a company using mostly borrowed money, then seeks to improve the firm's bottom line through measures that may include refocusing the business or forcing cost cuts. The goal is to eventually sell the firm to another company, or take it public again, at a fat profit.
The buyout wave is enriching company shareholders because private equity investors usually pay more than a stock's current price to clinch a deal. That is helping to drive share prices higher overall, analysts say; the Dow Jones industrial average has been hitting record highs.
Yet the surge in buyouts this year is making some on Wall Street wonder whether they're witnessing a replay of other episodes when too many investors threw too much money in the same direction -- the dot-com boom of the late 1990s, for example, or a late-1980s company buyout wave led by corporate raiders. Both of those booms gave way to painful busts.
"It's sort of feeding on itself now," said Edward Yardeni, investment strategist at money management firm Oak Associates in Akron, Ohio. "You could make a pretty good case that a bubble is building in private equity, and that it will burst."Private equity buyers have announced about 1,000 U.S. takeovers this year worth a record $356 billion, according to data tracker Thomson Financial. That dwarfs the $138 billion in such deals announced last year.
Private-fund deals still account for a minority of U.S. takeover activity. In all, the value of announced corporate takeovers this year exceeds $1.2 trillion; most of those are company-to-company deals. But the rising clout of private equity buyers shows in the sizes of the deals they're behind, experts say.
Five of the six top deals this year are private equity. That's never happened before," said Richard Peterson, an analyst at Thomson Financial in New York.
Most private equity firms aren't household names, but more may be on their way to that status as their corporate assets balloon. Big players include Blackstone, Bain Capital, Carlyle Group, Silver Lake Partners and Texas Pacific Group. One -- Kohlberg Kravis Roberts & Co. -- became famous for its massive deals in the 1980s.
More than any other factor, the ascendance of private equity buyers over the last few years reflects the willingness of well-heeled investors to pony up mountains of cash in search of better returns than they can earn in stocks or bonds.
"There is tremendous liquidity in the market," said Brad Freeman, a 23-year buyout fund veteran whose Los Angeles-based firm, Freeman Spogli & Co., has a $1-billion private equity fund it's putting to work. "Deals are being done because they can be."Private equity firms have raised an unprecedented $178 billion in new capital from investors this year, about 10 times what they raised in 1995, according to data firm Dealogic. The cash comes from investors such as the California Public Employees' Retirement System, or CalPERS, the nation's largest public pension fund.
CalPERS has about $6.3 billion invested in buyout funds, said Joncarlo Mark, a senior portfolio manager. The pension plan expects to earn an annual percentage return in the upper teens on that money, he said. By contrast, U.S. blue-chip stocks have generated a return of 11.4% a year over the last three years.
"There are a lot of investors out there looking for yield," said Josh Lerner, a finance professor at Harvard University.But the success of buyout deals depends in large part on the purchased companies' ability to handle the debt loads they take on with their new owners.
With many private equity funds wielding huge war chests, competition to acquire companies has become fierce, said Stephen Presser, a partner at private equity firm Monomoy Capital Partners in New York.
"At the moment, private equity firms are paying almost historically high prices for businesses, and are depending on those businesses to continue to grow in order to pay down their debt," Presser said. "If the economy softens -- and someday it will -- those companies are going to have a tough time" managing their debt loads.Some analysts also question whether companies that are targets of private equity buyers today can be substantially improved by their new owners.
"Companies already are under so much pressure to be lean and mean," Yardeni said. "It's not clear what they're [private equity owners] going to bring to the table to make these companies more profitable."Still, corporate managers often are happy to attract private equity buyers. One reason is that top managers often participate as investors in buyouts, with the potential to reap hefty financial rewards if the company is eventually sold at a profit.
The costs and regulatory hassles of being a public company also are spurring corporate boards down the go-private road, said Scott Honour, a managing director at Gores Group, a private equity firm in Los Angeles.
"Companies are bogged down by Sarbanes-Oxley requirements," he said, referring to the law Congress passed in 2002 tightening regulation of public companies after the financial scandals at Enron Corp. and other firms.That worries the Bush administration. In a speech Monday, Treasury Secretary Henry M. Paulson Jr. questioned whether the going-private trend might signal that U.S. regulation of shareholder-owned companies had become too severe, and was driving them out of the public market.
"Boards are saying, 'Geez, we're better off being private,' " Honour said.
The deal wave also has attracted the attention of another branch of the government: The Justice Department reportedly is looking into the power wielded by private equity funds and whether the biggest players may be illegally colluding to increase their clout.