24/7 Wall St.

If there is any sort of recession at all, the top hedge fund managers don’t know it. John Paulson and Phil Falcone of Harbinger each made as much as $2 billion last year. The top ten managers all made over $700 million.

According to the FT, some of the usual suspects like Paul Tudor Jones and Steven Cohen are on the list. They have a knack. like Warren Buffett, for outperforming the market most years. They have also created fee structures which allow them to make money on both the assets they manage and the results they return.

Wall St. is now stratified, perhaps more than at any time in recent history. It used to be that heads of major money center banks and brokerage houses made out-sized compensation, but that period is over, at least temporarily. It is independent pools of capital which drive the top comp packages.

The new caste system is notable not only because fund chiefs operate separately from large Wall St. firms, they will also not invest in them When institutions like Merrill Lynch (MER) and Citigroup (C) needed capital, US hedge funds were no where to be found. Sovereign funds from overseas put up most of the money. It is likely that hedge funds where short the banks and making a lot of money at it.

The system, while it is not evil, has become warped. It encourages one part of the US financial system to bet against another and make a fortune doing so. Capital now flows out of the traditional banking operations, like Bear Stearns, and into hedge funds.

Capitalism at its most ruthless.

Douglas A. McIntyre