A hedge fund manager recently adjusted his annual returns to generate a massive bonus for himself. Before adjusting his returns, he was down negative 20% for the year.
The hedge fund manager explained to his clients that if companies can adjust their EBITDA why can’t he adjust his returns? He further went to rationalize his decision by saying that the top executives of companies have historically used adjusted EBITDA targets for their own bonus program. Thus, the hedge fund manager is late to the game and will be readjusting historical returns going back ten years so he can get what he deserves.
A few items the hedge fund manager adjusted were as follows:
- If I would have bought Amazon.com, Inc. (AMZN) ten years ago the firm would have been up 1000%.
- If I wouldn’t have bought General Electric Company (GE) five years ago the firm would have been up 150% – this is a one-time item and will not repeat.
- Lawyer fees – lawyers have taken up too much time in 2019 and if I wouldn’t have dealt with them, I would have more time to research stocks. The firm would have been up 10% if it wasn’t for these fees. These are also one-time fees and will not repeat. If they do repeat in the future, I will continue to take them out and readjust my bonus.
Adding back the adjusted items the hedge fund went from being down 20% to being up 1,140%! This generated the hedge fund manager a bonus of over $500 million dollars.
Other hedge fund managers have started to catch on and are beginning to readjust their earnings.
I guess if public companies can use adjusted EBITDA why can’t hedge fund managers? It makes total sense to me. I might try to readjust my personal earnings so I can get that fancy house I have always wanted.