John Paulson and Alan Greenspan

http://www.futureofcapitalism.com/2011/01/john-paulson-and-alan-greenspan

Hedge fund manager John Paulson's "more than $5 billion in profits in 2010" are the subject of a front-page news article in the Wall Street Journal that is worthy of comment on several fronts. My personal favorite is the penultimate paragraph:

Other firms, such as Paulson & Co., have closed certain funds to new investors, but are actively raising new money for other funds. Mr. Paulson recently hosted a New York City event that featured speeches by former Fed chief Alan Greenspan and several chief executives of gold companies, aimed at boosting interest in his gold-focused fund.

Wonder what Mr. Greenspan was doing that that event? It turns out, according to a Paulson press release, that since January 2008 Mr. Greenspan has been a paid consultant to Paulson & Co, which is a big investor in gold. That all puts into somewhat new light Mr. Greenspan's 2010 comments on gold at the Council on Foreign Relations (as reported here by the New York Sun) and his comments earlier this month on gold on Fox Business News — "there are numbers of us, myself included, who strongly believe that we did very well in the 1870 to 1914 period with an international gold standard." The Journal doesn't get into any of that.

The author of the Journal news article is also the author of a book on Mr. Paulson, The Greatest Trade Ever, whose sales should get a nice boost from this all.

Finally, the Journal article contains a bit of editorializing about taxes:

Part of Mr. Paulson's more that $5 billion profit came from his firm's 20% cut of his funds' profits, known in the industry as the "performance fee." Those fees amounted to roughly $1 billion last year, according to a person familiar with the matter. An added plus for Mr. Paulson: A chunk of those profits are treated as long-term capital gains and taxed at a far lower rate than the standard income-tax rate.

The Journal doesn't say how much, just "a chunk." A lot of gold gets taxed at a collectible rate, higher than long-term capital gains. And it's strange how the Journal mentions this in articles about hedge fund managers, but not, say, in articles about entrepreneurs whose founder's stock is also taxed at long-term capital gains rates.

by Ira Stoll  |  Jan 28, 2011 at 11:48 am Related Topics:  Federal Reserve receive the latest by email: subscribe to the free futureofcapitalism.com mailing list