(Source: The New York Times)
Worldwide, there are now some 10,000 hedge funds, which the government regulates only loosely. Together, they have about $2 trillion under management. Even today, they employ the two basic tools that Jones used—borrowing (“leverage”) and selling short—and they charge their clients hefty fees, as Jones did. On top of a 2% management fee, they deduct 20% of any investment gains they generate. Jones claimed that this remuneration scheme, which is known as “two and twenty,” was inspired by the way ancient Phoenician merchants financed their trading expeditions. But the practice is also tax-driven. It allows hedge-fund managers to classify much of their income as capital gains, which are taxed at a far lower rate than regular income. While cops and schoolteachers face a marginal tax rate of 25%, hedge-fund managers like Dalio have for years paid 15% on the lion’s share of their income.
Two trillion dollars. That is more than the GDPs of all but eight countries. What an absolute racket. There is really no other conclusion that can be reached.