Which Eph made the most money in 2007? Excellent question. My guess for 2006 was Chase Coleman ’97. Last December I thought for that Mike Swenson ’89 might have a shot. But, be serious! Ten million (more or less) is nothing to sneeze at but is not enough for bragging rights among the richest Ephs.

In an article about legendary hedge fund manager Julian Roberston, Fortune reports:

Robertson has for years had a well-deserved reputation for spotting and developing talent. During his glory years managing the Tiger fund, the North Carolina native surrounded himself with bright, highly competitive, young men – often from southern universities – and worked them hard for their best ideas. Known as the “Tiger Cubs,” a number of them graduated and became extremely successful hedge fund managers in their own right, including John Griffin of Blue Ridge Capital, Lee Ainslie of Maverick Capital, Andreas Halvorsen of Viking Global, and Steve Mandel of Lone Pine Capital.

There was a new generation of talent in place at Tiger when Robertson unwound the fund in 2000, and he decided to give some start-up money to a handful of the sharpest analysts on staff and mentor them. These were the first “Tiger Seeds,” as he calls the money managers currently affiliated with the firm. “I wanted to continue to have some young people around,” says Robertson. “I didn’t want to go from age 70 to Methuselah. So we kept the space, which seemed sort of silly at the time, and we seeded a few guys who had worked for us in starting new hedge funds. And this has succeeded beyond my wildest dreams. It’s been an unbelievable success. And it’s happened because of them. We selected good people, but they are the ones that have manufactured the record not me.”

Two of the “Tiger Seeds” with the longest and best records are Bill Hwang of Tiger Asia and Chase Coleman of Tiger Global, each of whom were in the original group of new funds to set up shop at Tiger’s office at 101 Park Avenue near Grand Central Station in midtown Manhattan. Hwang’s fund returned 55% in 2007 before fees and has a seven-year average of 40.4%. Coleman made a gross return of 91% for Tiger Global last year and his seven-year average return is 43.7%.

To average 43% from 2001 through 2007 is simply stunning. Bloomberg reports similar numbers: “Chase Coleman‘s Tiger Global Management LLC in New York, which was backed by Robertson, returned 71 percent after fees, fund investors said.” The difference between the 91% raw returns and the 71% after fees return is, of course, Coleman’s revenue. Since hedge funds have very low expenses, almost all this revenue is profit.

But what are Coleman’s assets? Tough to say, but judging from the amounts that the other “Tiger Cubs” are managing (see the Bloomberg story), $5 billion is not a bad estimate. And, 20% on $5 billion is . . . let me get out my calculator . . . carry the “1” . . . place the decimal . . . . Oh my goodness! Chase Coleman’s firm made about $1 billion dollars last year. Comments:

1) It is tough to know how much other super-rich Ephs made in 2007 since their assets are not marked-to-market and their exact ownership stakes are unknown. Could the wealth of the Kraft (Jon ’86) or Steinbrenner (George 52, Hal ’91) families increased by a billion in 2007? Sure. But there is no way for outsiders, or even insiders, to have a ready measure of that.

2) Did Coleman personally make one $1 billion? Perhaps. On one hand, he has an entire firm (20 people?) to pay. They want their share of the wealth as well. Also, I have heard rumors that Julian Robertson has an ownership stake in most of the funds run by his proteges. If the firm is 20% owned by Robertson, then he probably gets 20% of the profit. On the other hand, Coleman probably keeps most of his wealth in the fund, so he made 91% on that money. Putting this all together and taking a wild guess, a number like $500 million would not be unreasonable.

3) Where does that put Coleman in the distribution of US tax-payers? Pretty high up. Only 400 taxpayers had income higher than $87 million in 2005. Peter Nunn’s ’08 offered somewhat related thoughts on rising income inequality in the US. The problem with these complaints is the vast majority of the “problem” is at the upper end of the income distribution, not the lower. Families in the 5th percentile are, relative to those in the 50th, about as well off (or poorly off, depending on your point of view) today as they were 10 years ago, or even 50. This is probably even more true when you look at consumption rather, or at least in addition to, than income. To the extent there is a problem, it is concentrated among rich folks. The 99th percentile is much better off relative to the 50th today than it was 10 years ago.

4) And what is the problem with that? The thing that bothers me about discussions of income inequality, even when they include smart Ephs like Nunns, is that there seems to be no desire to grapple with actual human examples. Coleman earned more last year than all the rest of his class at Williams put together. The reason is some combination of talent and luck on his part, along with the choices made by his classmates. Some other members of the class of 1997 are teachers, making much less money than Coleman. They had no illusions (one hopes) when they chose teaching over finance a decade ago. They could have chosen otherwise. We all hope that the choices they made were wise ones, that they would not have been happier in some counterfactual world in which they strove for great wealth. But there can be no doubt that, at least among Williams graduates, the distribution of incomes is a result if human choice, made from a starting point of equal opportunity.

5) Are you a member of Purple Bull or Purple Cowpatilism who wants to follow in Coleman’s footsteps? Then start networking! Coleman got his start at Tiger based on connections. If you don’t have those connections, start creating them. Start networking with Ephs in finance. Reach out to interested alums. EphBlogger Rahul Bahl ’09 is standing by to publish your investing ideas at EphBlog. Send them in. Useful discussion will follow. Connections will be made.

And then, with luck and skill and ambition, you too can join the ranks of the Eph multi-millionaires.

UPDATE: Perhaps there has been more change in the 5th versus 50th percentile than I thought. See here for some discussion, via Crooked Timber. Still, the vast majority of the increase in inequality in America is driven by the top end, not the bottom. Given the mobility of rich people, both their actual wealth and their human capital, there is little that public policy can do to change that.

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