Billionaire hedge fund manager at 38 retires

Recently, John Arnold announced that he would close his hedge fund Centauras Energy and return money to investors. Arnold is pretty young being only 38 and has been an energy trader for 17 years. Apparently, the fund only made a 4% return for advisors which is not the typical double digits return that John Arnold would return. Last year he returned 9% and made $360 in the process. In 2006 Centauras Advisors earned 300% which was much better than in 2005 when they earned 150% (mostly due to the blow up of Amaranth Advisors).

Arnold got his start at the now defunct Enron. He went to Vanderbilt University where he earned an economics degree and even his professors weren’t surprised when they heard he was earning billions. When he worked at Enron Arnold was a natural gas trader and did very well. In 2011 alone he earned $750 million. Many people and politicians complain that traders create little to no value. However, this is not true. Traders don’t increase prices because they are responding to the fundamental market conditions. In order for a trade to be made there has to be both a buyer and seller. People get enraged when prices of oil increases however don’t even talk when the prices go down which is due to traders like John Arnold.

Arnold is setting off into the sunset quite early. He mainly wants to depend his time and resources with the Laura and John Arnold Foundation which has around $700 million. In 2011 alone John and his wife Laura donated $100 million to various different causes. Really John Arnold is saying is that he does believe he can’t earn the great returns he has been making. Usually financial planning professionals say that you can withdraw up to 4% of your income and still be able to retire. So essentially John Arnold could withdraw $120 million per year which is a substantial amount of money (this would vary depending on how much he gave to charity). Clearly, though there an opportunity cost for Arnold not running a hedge fund. He could be helping other people get rich but has decided that philanthropic pursuits are worth then what he can make in the future. I have a feeling that after a while John Arnold will want to get back in the investing game in some way in the future.