What Merits the MeritocracyBy J.E. Fishman
October 17, 2012
Leon G. Cooperman is a very fortunate man. The son of a plumber, he went on to run the asset management business of Goldman Sachs. Presumably, that made him quite rich (the math: Goldman partner = rich), but he didn’t stop there. He next founded his own hedge fund, which, according to Forbes, manages $6.1 billion. His net worth is said to be $2.2 billion, which puts him comfortably in the middle of that obnoxious record of acquisitiveness known as the Forbes 400.
I have Leon Cooperman on my mind because I recently read Chrystia Freeland’s New Yorker piece entitled “Super-Rich Irony: The billionaires battling Obama.”
Leon Cooperman, the son of Polish immigrants, is fortunate to have been the first member of his family to earn a college degree, attending Hunter College undergrad and earning an MBA from Columbia. Are you also aiming for higher-paying career prospects in the future? One of the most appealing aspects of a STEM MBA Program similar to the ones at stem mba in usa is that it combines the best technology and corporate worlds, and that can help you reach your dream!
And he’s fortunate to have lived at a time when a decent school would admit a no-name kid from the South Bronx, which wasn’t always the case.
I’m thinking about the opportunity he had… I went to Tufts myself, on my own steam if you don’t count tuition and living expenses (all of which my father kindly paid). By then “legacy” admissions were nearly a thing of the past, supplanted by merit, as it should be. Like Leon Cooperman, my father, also the son of immigrants, had no legacy option. He began delivering groceries at the age of nine when his father died, went to Brooklyn College on the GI Bill, and raised funds for his incidentals by working odd jobs. On the other hand, many members of my wife’s family — present on these shores for hundreds of years — took advantage of the legacy system. They might have made it on their own merits, but who knows.
Leon Cooperman also is fortunate that his chosen industry grew astronomically in the years that coincide precisely with his working life. In 1970, when he was 27, the financial services industry accounted for less than 3% of the entire Gross Domestic Product of the United States. By 1991, when Leon Cooperman left Goldman, it was up a third to more than 4%. A decade after that — around the tenth-year anniversary of his founding of Omega Advisors — it had passed 5.5%. To put that in perspective, GDP in 2001 exceeded $10 trillion. One-twentieth of that is $500 billion. That’s not the money under management. It’s the industry’s revenues.
I read the paper version of Freeland’s article on a weekend flight to Santa Fe, when the Nazis who masquerade as flight attendants insisted that I turn off my Kindle. My daughter, who attends private school, had the Friday and Monday off for Columbus Day weekend. We stayed in a nice hotel, ate good dinners, and paid for a private tour of some spectacular sites.
Leon Cooperman is most fortunate that he chose an industry where compensation has come to be set by the law of the jungle — where having a bigger pair of balls than the next guy is more important than having a bigger brain. That is not to say that Leon Cooperman and his ilk lack brains, but plenty of people have brains. What distinguishes this crew is a lack of compunction.
At the private school my daughter attends, many of the parents are well-paid professionals or corporate executives, and more than a few (including us) have wealth from entrepreneurial activities, investments and/or inheritance. Many parents help their children with their homework — to the point, we suspect, of sometimes doing it for them. Most of the parents who do this consider themselves deserving winners in the meritocratic race, and they intend for their children to win, too, even if it requires carrying them across the finish line in a sack with a bow around it.
In a nutshell, here is how things work in Leon Cooperman’s field of competition. People give hedge fund managers millions of dollars in hopes they’ll turn it into even more. Who are these giving people? Some of them are wealthy families or individuals, to be sure, but most are themselves managers who sit upon great piles of money — money in retirement plans, endowments, that kind of thing. Institutional money. In other words, other people’s money. The manager, who’s generally a working stiff with a mere six-figure compensation, faces great pressure both to preserve capital and to earn a return on his institution’s money. How does he decide where to put his hundreds of millions? Two methods. First, he allows himself to be schmoozed, flattered, and sported fabulous dinners featuring trophy bottles of wine. Second, he looks at the track record.
But here’s the interesting thing about hedge fund track records. As in Lake Wobegon, every hedge fund that’s been around for a while gets rated above average. How can that be? It’s simple. According to a paper under the auspices of Hedge Fund Profiler, “Hedge funds have an average life span of about 3.5 years. Very few have a track record of more than 10 years.” That’s because if you’re below average for a few years running, you close down your fund and start another. In other words, you throw shit up against the wall until some of it sticks. Then you wipe away the stains of all the misses and tell the world what a genius you are.
To be fair, closing down unsuccessful hedge funds and starting over is not the story of Leon Cooperman, as far as I know. But it is the story of his industry, and everyone in that industry benefits greatly. The standard compensation of a hedge fund is “two and twenty” — a 2% management fee plus 20% of all profit. You have a few good years and those institutional managers begin throwing money at your firm. Two percent of $6 billion is $120 million in set fees. Say the hedge fund registers a mere 5% gain for the year — $300 million. The fund takes $60 million of that. You get the idea. Their dough overfloweth.
Leon Cooperman and I are fellow members of the top 1%. Which is a little like saying that I have something in common with the bandicoot because we’re both mammals. In fact, if the distance between Leon Cooperman and the most pathetically wanting person on earth were one mile, my family would be standing something like 5,250 feet away from Leon Cooperman.
In a now infamous open letter to the President of the United States, published in the New York Post, Leon Cooperman described himself as “a taxpaying businessman with a weekly payroll to meet.” But does any hedge fund use its bounty to employ thousands of workers? Uh, no. According to Barclays, the median headcount for a hedge fund with more than $5 billion under management is 127 people. For comparison sake — though it’s admittedly an imperfect comparison — Airgas, a publicly traded industrial machinery company, has a market cap of about $6 billion and employs 11,000 people.
Leon Cooperman admits that luck played a part in his success but emphasizes how hard he works. He named his hedge fund after the last letter of the Greek alphabet, perhaps as a signal that he’s willing to go to the nth degree. He wrote in his open letter that he has “been richly rewarded by a life of hard work.” Freeland observes: “Cooperman makes it known that he gets up at 5:20 a.m. and is at his desk at Omega’s offices in lower Manhattan, on the thirty-first floor of a building overlooking the East River and Brooklyn, by 6:40 a.m. He rarely gets home before 9 p.m., and most evenings he has a business dinner after leaving the office.”
In northern Westchester County, where I used to live, we were surrounded by Wall Street multi-millionaires and billionaires. They regularly bought neighboring houses and tore them down in order to improve the views from their own mansions. They owned expensive horses they didn’t have the skills to ride. Most of them lived behind gates and very few stooped to socialize even with well-off locals. One guy, however, who sits in the top 50 of the Forbes 400, occasionally had me over for doubles on his personal indoor tennis facility, where he was always the worst player on the court. I had a bad outing once and he stopped inviting me. Or maybe he just had to work.
If Leon Cooperman is so fortunate, why is he so angry? His open letter to the President of the United States via the New York Post carries a tone both of condescension and hurt. He writes of “the tenor of the rancorous debate now roiling us that smacks of what so many have characterized as ‘class warfare.’” No one has accused Leon Cooperman of doing anything illegal, but to me the letter’s tone evokes the criminal caught red-handed who attempts to hide his own misdeeds by loudly feigning offense at the accusation of his guilt. Whatever he’s feeling guilty about, rather than be tried in the court of public opinion or by his shrink, Leon Cooperman prefers to chart his own path to expiation, having taken Warren Buffett’s Giving Pledge.
Freeland writes: “Many billionaires have come to view charity as privatized taxation, paid at a level they determine, and to organizations they choose. ‘All things being equal, you’d rather have control of the money than the government,’ Cooperman said. ‘Even if you’re giving it away, you’d rather give it away the way you want to give it away rather than the way the government gives it away.’”
When I was a literary agent, I represented a book by Howard Schultz of Starbucks, which resulted, it seemed, in every guy who made a million bucks coming to me with the book proposal for his own autobiography. They were always startled when I politely told them that the reading public didn’t give a crap. So I think, when I read Leon Cooperman’s quote, that controlling the money is only part of a bigger story. People who succeed in a meritocracy want more than money. They want to have their success acknowledged. They want their name on the building in tasteful raised lettering, and when you pay taxes you don’t get that. Worse, sometimes the politician does, which means he won and, therefore, the guy on the other side of the trade — the gazillionaire — lost.
When they lose even a little bit, these meritocrats get steamed. And when they get steamed, they lash out. So it seems that Leon Cooperman and other hyper-successful Wall Streeters now feel compelled to equate the election of the current President of the United States to the rise of Hitler. Writes Freeland: “Comparing Hitler and Obama, as Cooperman did last year at the CNBC conference, is something of a meme. In 2010, the private-equity billionaire Stephen Schwarzman, of the Blackstone Group, compared the President’s as yet unsuccessful effort to eliminate some of the preferential tax treatment his sector receives to Hitler’s invasion of Poland. After Cooperman made his Hitler comment, he has said, his wife called him a ‘schmuck.’ But he couldn’t resist repeating the analogy when we spoke in May of this year.”
In the old days, people who had fuck-you money rarely had the gall to tell the rest of society what to do with its concerns about fairness. Maybe that’s because when they did so (“Let them eat cake”), things ended quite badly for them. As a novelist, I wonder why a man who has more fuck-you money than all but about 200 people in America is so offended by the President’s tone that he feels compelled to share with the world a letter expressing his feelings of insult. Wait a minute: Does it sound like I begrudge him his success? I don’t. I begrudge him his attitude.
Oh, but hold on. Leon Cooperman’s gripe with the President of the United States may be personal. It turns out he gave the President two copies of a book of his fourteen-year-old granddaughter’s poetry and didn’t get the thank-you note he expected. Come to think of it, the political principles that he sketches in the open letter don’t sound bleeding-edge right wing. Perhaps he’s not really making a political argument at all. It’s more that he feels slighted. Apparently, America hath no fury like a billionaire scorned.
This makes me wonder. By next January, I’ll have three novels published, and as it happens each features a wealthy member of the new meritocracy. In the first, Primacy, it’s the CEO of the world’s biggest animal testing laboratory. In the second, Cadaver Blues — an earlier version of which ran serially on TNB — it’s the founder of a health insurance company. And in the third, The Dark Pool, it’s a hedge fund manager in Greenwich, Connecticut.
Suddenly it occurs to me that all of these super-rich characters are bad guys. If I give my books as a gift to Leon Cooperman, does that mean he won’t send me a thank-you note?
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