How Do Bankers Become Billionaires?
The internet tells me that the likes of Jamie Dimon and Lloyd Blankfein make at most around 30 million in a good year as CEOs of prominent investment banks, and that's not even factoring in tax. The internet would also have me believe that both of those guys are billionaires. That math doesn't add up so what gives? Is the remainder of their income from appreciation of assets? If so then they must make more in capital gains every year than they do from actually doing their job.
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by starting a bank
Ah yes, Lloyd Blankfein and Jamie Dimon, the proud founders of Goldman Sachs and JP Morgan, respectively.
you can start a boutique tho, but I def didn't read what was said
An industry that produces so many millionaires will necessarily produce billionaires as a few of those millionaires invest in the right ventures and see their assets rise exponentially. That's not how bankers become billionaires, that's how anyone becomes a billionaire. No one is paid a billion dollar bonus. Dimon got there by investing in the businesses he helped grew, even buying up shares. Now his wealth is those shares, and what he had to sell but is now reinvested all over the financial world. Roughly half of his wealth is just the stock in his bank.
The only people actually paid billions in cash are HF managers and athletes like LeBron or Mahomes
hedge fund managers (i.e. founders of hedge funds) don't get paid billions in cash, they get a return on their co-invested capital + their share of management/performance fees. pretty massive misconception that it's just a fat bonus and that any hf PM could get to that point (you literally have to build a $100m+ revenue company of which you're the founder of to pull that off).
Lebron James and Patrick Mahomes aren't being paid billions in cash...
CEOs of mega public companies like that have stock options worth a lot more than the face value that shows up in their reported comp if they hit targets somewhere close. Add golden parachute like Rex Tillerson got or people getting bought out - you are in billions without having to gamble on next great start up.
Just to take the startup perspective from this: if you want to be a bank executive it's true that you're not gambling on making it big as an entrepreneur, but you are absolutely gambling in a low probability repeated tournament game. With a startup, you can legit just find a part of the market that everyone else has overlooked (Sara Blakely with Spanx comes to mind actually) and not have competition for a long time while everyone else thinks the idea is dumb or too early. Being a high tier investment banking CEO is something that a shitload of super smart, ambitious, and well-connected undergrads and MBAs would love to become someday and they join the market in the thousands every year - so to make it to that level, you have to hit a dice roll on basically every single sorting event (promotion, grad school, high tier interviews, bonus season) for your entire life starting at like age 18 to get there, definitely a low probability outcome with plenty of luck involved (in other words, a gamble).
To clarify - I meant once whoever makes CEO, they just make a lot on options (vs trying to invest in start ups to be rich) which is what OP was trying to ask. Not odds of you start as an analyst and make to CEO or start your own things
Yeah, except you have to find that market and put out a product people want to buy.
The path into becoming a wealthy banker is obvious and relatively easy. No one is saying that every person who wants to work on Wall Street will get there, but the success rate is pretty high. What percentage of people who want to found a start-up actually do so? What percentage of those people are still in business after a few years? How many of those businesses are sold for more than a nominal amount? Having a company valued in the 8 or 9 figures is incredibly rare, far more so than being a banker making 7 figures a year
Most of this is on wiki but pretty sure Lloyd was a partner when Goldman went public and he made 9 digits on that piece alone. Also his compensation from 06-07 was another 9 digits. Also he was COO for 3 years before becoming CEO. He's probably been making $5mil+ a year since he was head of commodities in 1994, and since he made COO in 2004 has been making $30 million a year for around 15 years. A lot of that is the value of his stock the day he is paid but the options overtime end up being worth more.
Jamie Dimon similarly has accumulated over a half a billion dollar position in JP Morgan over his time as CEO. He was CFO of Commercial Credit at age 30, that turned into Citigroup. Then he was COO of JPM in 2000 until he became CEO. He has probably been making $5mil+ for 30 years and over the last 20 years $20mil+.
You also have to remember that these guys have access to the best hedge funds, the best private equity firms, and have the skills and the network to place their money in a position to not only hedge against the rest of their wealth but grow at above average rates of return.
Jamie wasn't at JPM in 2000. He was chairman and CEO of Bank One until the merger in line 2004
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Ha ha OP, you'll soon understand that you can't become billionaire by being a wageslave
Whilst you're absolutely right, picturing a prospect who's never worked an hour in his life lecturing others on wageslaving isn't a good look
hence the anonymous post lmao
You won't become a billionaire, but banks pump out multi millionaires like factories.
No one gets rich off income - literally no one.
It's all stock options / warrants / RSUs / carried interest - it's all capital appreciation. In a capitalist system there are the people who own the capital and everyone else. Everyone else is an employee. The vast vast majority of all PE / hedge fund individuals who achieved billionaire status did so as the founders of their respective firms (so basically a start-up that achieved scale and success only in finance and not tech).
The only people that ever become billionaires are CEO’s and Founding partners of very successful businesses think companies with global footprints. Bankers that don’t go on to start the next Goldman Sachs will never be billionaires.
Even an MD at a major investment bank after 40+ years of work is worth 20-30MM and that’s if he/she repeatedly hits home run deals over the span of decades.
The same holds true for Lawyers, Venture Capitalists, Doctors/ Surgeons, Hedge Fund PM’s, etc. at the partner/head of division level at the biggest firms and practices.
The only way to make more than that is through god-tier investing and careful planning or to start something of immense value.
CEO’s of tech companies sometimes don’t even make that kind of money. Sundar Pichai the CEO of Google is barely a billionaire. However Larry Page and Sergey Brin are billionaires because they started the venture in the first place. So in most cases you can’t even be a billionaire unless you are the CEO and Founder/ own 20% of your venture. Famously talented senior staff at major tech companies aren’t billionaires take Angela Ahrendts (Ex-SVP of Apple) for example.
Honestly the difference in quality of life between someone worth 50MM and 1Bn is minuscule. The most expensive houses on the market are worth on average 20-25 MM. A fleet of the best cars is another 5M (500k - 3mn per car). A designer wardrobe is worth at most another $300k (anything beyond this level is ridiculous) a great suit is like 8-12k * 10 = 80k to 120k the rest are basically casual clothes can you actually spend more than 180k on casual clothes, shoes, deodorant, cologne, shaving cream for the rest of your life? Can you really spend an additional 19.7M on vacations, food, investments, medical bills? A top tier 12 course dinner for one is 500$ you can buy well over 39,000 meals. If you lived for 100 years and consumed a 500$ dinner from birth you would consume only 36,500 of those meals. This is akin to being married for 50 years and buying the dinner for two.
Why the fuck would anyone want to be a billionaire. That’s too much money. There’s so few billionaires that you would almost definitely be recognizable everywhere you go. Isn’t it better to be an anonymous person worth maybe 30MM than to be a billionaire? I’d trade privacy for bragging rights any day.
Therefore, in my opinion, the question should be “how do I become an MD?” rather than “how do I become a billionaire?”because so few people can accurately answer the question of “how do I (an engineer/ wannabe investment banker) become a billionaire?” none of whom are on WSO. Alternatively there are numerous MD’s on WSO.
This ends my rant.
^ the above analysis makes sense form the persepcitve of "how can I make a billion dollars in temrs of it bringing me monetary happiness"
This is true for a minority of billionires. Most wanted to do somethign compeltely gorund breaking / change the world / etc.
You're right in that the difference in happiness between a billion a 50 million isnt much. I'd go a stretch further and say the happiness between 20mm and 50mm also isn't much. It's a diminishing effect and also depends on one's tastes.
Dan Loeb isn't going to be a billion times happier because he can eat at dorsia wheneve rhe wants. Halal guys is great too lmfaoo
what’s an MD lol
“I’m worth 10 million dollars, sitting at the same restaurant as someone worth 50 million dollars. You know what the difference in life style between us is? 40 fucking million dollars” - Dave Chappelle
Dave chappele walked away from tens of millions of dollars earlier in his career. He's seen both sides of this.
As someone who has wealth management experience, you definitely are not recognizable on the street being in the 3 comma club. I've seen client's worth several hundred million dollars whom you would never recognize their name. You're definitely right in the fact that these people start very successful companies, but I wouldn't say you have to start a Google level company to amass that level of wealth. One of our larger client's currently keeps just around $1b at the firm +/- $100mm, is personal friends with Jamie Dimon whomst he sends money to JPM for personal investments regularly(most recently $140mm), but you would be lucky to find much more then a few paragraphs of information on him on the internet. The story of how he amassed his wealth is admirable and impressive, and he absolutely made serious sacrifices, but his quality of life is incredible and much different than that of someone worth 30-50mm. He's definitely the exception rather then the rule to making that level of wealth, but it's possible.
Could you give a bit more insight? I know you probably can't reveal too much about your client but what kind of sacrifices, what key decisions did he make etc.
I've been fortunate enough to have met a lot of successful entrepreneurs as well and I always try to learn a bit from them whatever it may be
I second this. There are 2825 billionaires in the world, and around 50k more than have more than 100 M but less than 1B. If you asked anyone to name billionaires (or even people with more than 100M), I doubt they’d say more than 20 (probably far less than that). As a matter of fact, 99% of people out there wouldn’t be able to name the Forbes T15 wealthiest in any order.
People know a few billionaires that are always on the news. If you saw Amancio Ortega, Ma Huateng or Dieter Schwarz you’d have no clue who they are, and they are worth 55B, 40B and 20B respectively.
"Honestly the difference in quality of life between someone worth 50MM and 1Bn is minuscule"
That is a very big gap and the quality of life is very different. $50MM is a lot, but you don't have unequivocal financial freedom. I have worked with my fair share of clients and MDs who are worth ~$50MM and quite a few clients/founders that are worth $1bn+. the lifestyles are dramatically different.
The $50MM guys are living very comfortable lives no doubt - typically a nice primary home in NY/CT with great secondary homes in the Hamptons and/or Palm beach etc, nice cars, kids go to good schools, will often charter flights but will still fly commercial.
The billionaires are in a completely different league - multiple homes over multiple continents, ownership of private planes (emphasis on the plural), mega yachts, family office, the ability to pursue whatever philanthropic cause they want, access to selective/exclusive opportunities and investments, and the list goes on. Rich enough to not waste time
$100 MM seems like the perfect amount
Worked at a startup and our billionaire lead investor flew the CEO, the other directors and I to a board meeting on *one* of his private jets. He also literally flew us as he had his pilots license haha.
Very true. 99% of the wealth are created from starting a company, doing something one enjoys and believes in, and creating value. These sound generic but most of the time, trust is just this simple...
The CEOs aren't the highest paid employees at banks. The top traders can make $100m+ a year when they manage $10b+ of the firm's money. Also, an MD with exceptional deal flow for bonuses + equity can make more than the ceo
Their job is to generate capital gains.
Capital gains and net income (gross / margin / growth)*
That's ultimately the job of a CEO - so called unlocking "shareholder value".
Equity, not comp
How much is a guy like Blair Effron worth?
The difference between a multi-millionaire and a billionaire is political / societal influence.
When you have billion(s) of dollars (and all that is associated with that) - you realize that everything has a price, including national politics. You are in a position to - in a small way- shape how the world works either to suit your ego, or because you genuinely believe that you can make the world a better place (see - Trump, Bloomberg, Seyer, Corzine, Hank Pauslon - not sure the last two were actually Bn but you get the point).
This is 100% true. My personal view is that once you reach say ~$50m your quality of life reaches a point of diminishing returns, but the people who are actual billionaires are looking for power & influence on society, not an additional toy to play with.
Another example to add is Bill Gates. He has tremendous influence on global affairs - his foundation provided $750m in funding for the development of the Oxford coronavirus vaccine. Initial trial results were published today, and were very positive, and it’s somewhat likely that 1 billion doses of this vaccine could be produced and administered by the end of 2020. If this all holds, there’s a very real chance that Bill Gates will have played a role in delivering what could be one of the most consequential scientific events in centuries. This isn’t really something you can do with $50m.
Also not saying billionaires should have this influence, just that they do.
agree with your point about the diminishing returns. I bet if you asked most billionaires how their lives have changed going from 50mm to 1BN, most would focus on the political power and social influence they exert, not the fact that they now own a jet instead of one fractionally and have an 80MM penthouse instead of a 15mm one.
You become a billionaire by owning an extremely successful company. That's pretty much it. I suppose if you are extremely successful investing, hit a generational home run, then maybe you get close too. But if you're a super-successful banker/trader/etc... lets say you pull down an average of $25mm a year for 20 years. That's completely unheard of, as far as I can tell, and you're still only halfway there. That's before taxes.
Without knowing or going through the individuals, I'd bet 99% of the world's billionaires, or even anyone within a couple hundred million, got there through either inheriting or building a non-finance related business. No one did it as an employee.
The entire point of having an employee is that they generate more value for your business than you pay them. So, if you are employed by someone else in any capacity, you are theoretically giving up compensation in return for taking less risk. The flipside is also the case, which is why billionaires own businesses - they're scraping some percentage of value off every person in their employ. Of course, they also take risk, and risk is the name of the game. The more you take the more you'll make.
Don't forget being at the right place at the right time. Both my grandparents rode out the Asian Miracle and made millions.
A banker can become a millionaire very easily. I'd argue Wall Street is the easiest way to be worth seven figures. You don't need to be particularly smart or have a talent, just be able to grind (which I don't mean as an insult to your grandparents or anyone else's). Becoming a billionaire is a vastly different story. I'd argue billionaires help *create *the right place and the right time (or the self made ones do), whereas millionaires happen to be there when they do.
It's easy to say Jeff Bezos or Bill Gates or Karl Albrecht all had dumb ideas they made money off of. But that's hindsight. At the time those ideas were somewhat revolutionary
How are you defining non-finance related business?
42 of the 500 billionaires on the Bloomberg Billionaires index are listed as having made their fortune in finance, and that list only scales down to $4.38bb
This is my mistake. I shouldn't have said "non finance related business". I don't know who many of these billionaires are, but the ones I do know aren't looking to take in big bonuses or pull down big paychecks. They started a company and built it up, it just happens to be a company in the finance space. To my mind that is no different than any other company founder.
My underlying point was that no one becomes a billionaire as an employee. And however well paid your top traders or bankers are, they are still employees and highly unlikely to become billionaires.
They guess the numbers on a dollar bill correctly like In liar's poker.
The CEOs or fund managers who go on to achieve a net worth in billions usually don't get there just based off the compensation they receive from their corporate positions. Although a 30 million dollar compensation is insane, the difference between a billion dollars and a million is about a billion dollars. The ones that do go on to net billions usually leverage their connections/experience/current wealth to set up their own funds or invest in personal projects, like acquiring and growing companies, VC, etc. Over time this adds a significant amount of personal cash flow and if successful can project them into billion dollar net worths.
Having a billion dollars is a different way of saying you have accumulated the fruits of the efforts of countless people over a very long period of time (capital) and the controlling say over where the efforts of countless more get directed in future (asset allocation). Thinking of wealth in terms of consumption is only one aspect. I find it better to think of money in terms of human time. There's a natural limit if you are only accumulating the fruits of your own time. The unit price of your time might be high (banking, doctor, lawyer) but you need to capture units from other people to build serious capital.
Seems like someone understands the valorisation of Capital.
Interesting, never heard of it. Although it seems this concept relates more to labour improving the value of the capital asset itself (such as an employee training other staff) rather than simply capturing the surplus value of an employee's time?
I would like to know that too
Equity. It's always equity. Period.
Equity
All equity/fund ownership for people in finance. The GS IPO was one example, the Glencore one another more recent one. There is no way on earth a trader ends up a billionaire outside of a well-timed IPO or owning a HF. Even the absolute top crude trader at Vitol will pull in $50M max in a great year. The CEO of Vitol's wealth was estimated at 180m pounds in 2017 despite essentially building the biggest independent physical oil trader ever.
Cargill is an interesting one, despite still being a private company, there are over 10 members of the family that are billionaires. That's the fruit of 150 years of being very careful and keeping 85% of the business.
Haven't read much about the history of Cargill, but they aren't exactly a financial services firm/trader are they? or perhaps they started out as pure merchants?
Started out as grain elevators, eventually became the world's top grain merchant and diversified into almost everything market imaginable at one point or another. They had a futures brokerage division for a while whose head then started the commodities desk at Goldman before the J. Aron purchase. They have groups that have spun off as hedge funds, a desk that left to become one of the world's larger shipowners, a trade finance group, were some of the pioneers in iron ore trading...
Not a pure financial services firm by any mean but their influence in the commodities field looms very large.
Bankers don't become billionaires (based on compensation anyway). The biggest part of their wealth is certainly in stock value. If they've made tens of millions in bonus paid in stock and the stock goes through the roof they do really well. But that's from stock performance.
Hedge fund managers become billionaires (if they're good) based on the 2 and 20 comp structure (2%aum and 20% of profit bonus) Take a fund from 2B to 4B and then invest the comp (primarily back in your own fund) and you get there.
PE partners become billionaires based on waterfall on many successful aquisitions
VC partners become billionaires based on many successful partnerships
Mutual Fund managers could become billionaires under certain conditions. Bill Gross made 290M his last yr at PIMCO and sued because he felt underpaid. Mohammad El Erien maid 100M several yrs in a row at same firm before leaving. Think about that. Way more than any pro athlete will actually make (from their contract anyway). Mookie Betts just signed a 12 yr 360M contract. Over that same time frame, leaders some of these shops will make WAY MORE than that.
true
They don't.
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