Now
this is a guy who a financial firm would consider "value add". Amazing to see the compensation structure, in half a decade a trader can earn a quarter of a billion? Wow. Well he deserves it more than former CEO Chuck Prince...
- The commodities market's historic surge is generating huge paydays on Wall Street. One of the biggest beneficiaries has been Andrew J. Hall, an enigmatic British-born trader who, five years ago, anticipated an important shift in the way the world valued oil -- and bet big.
- Over the past five years, Mr. Hall's compensation has totaled well over a quarter-billion dollars, according to a Wall Street Journal analysis of securities filings and Mr. Hall's compensation structure. One of those years he out-earned his boss, the head of Citigroup Inc., about five times over.
- Last year, an unusually rough one for Citigroup, Mr. Hall's secretive trading unit, Phibro, generated close to 10% of the bank's total net income.
- Mr. Hall's power at Citigroup is the result of his winning bets on oil and natural gas, part of a broader commodities boom that has swept the world this decade.
- Mr. Hall's bet -- that long-term and short-term energy prices would soon abandon their historical relationship with one another -- looked like a long shot when he made it. In making it, Mr. Hall individually took on more risk than Citigroup typically permits some groups of traders to carry, according to a person familiar with the bank.
- Now, after 15 straight profitable years, Mr. Hall has considered breaking out on his own. Last year, for the first time, he began managing outside money for clients including investment giant Blackstone Group and others.
- While Mr. Hall is on a winning streak this decade, he has had setbacks in the past. Phibro had three unprofitable years in 1991, 1992 and 1993, when it went through a rough patch with its refining businesses amid an economic downturn.
- He bought a nearly 1,000-year-old castle in Germany to display his collection. (I need one of those)
- Around 2003, Mr. Hall became convinced big structural changes were looming in the oil markets. For more than a decade, oil had ranged from $10 to $30 a barrel. But growth in demand was starting to outstrip growth in supply. And the once-sleepy economies of China and India were starting to compete for that fuel.
- To place his bet, he focused on what was then a stagnant corner of the commodities world: The extremely long-term market in which traders buy and sell oil to be delivered years in the future. He started buying all the oil futures he could for delivery three to five years out. He also bought "call" options, which bestow the right (but not the obligation) to buy oil at a set price in future years. He made similar trades in natural gas.
- The strategy worked. Around 2005, the discount for far-forward oil vanished and it began commanding a premium. That year, tiny Phibro contributed $800 million or more in pretax revenue to Citigroup. Mr. Hall's pay totaled as much as $125 million, around five times that of Charles Prince, who was then Citigroup's chief executive.
- Mr. Hall has sought profits in more unusual commodities, too. Twice in the past decade he has assembled big stockpiles of rhodium, an obscure metal used in catalytic converters. He got out both times at around 10 times his money.
- A generous pay deal dating from the Salomon days lets Phibro keep 20% to 30% of its trading gains. Not only can that outstrip what others within Citigroup receive, it outshines some hedge funds, which typically keep 20% or so of profits.
