Not sure why you were downvoted, it's true. A market competitor hasn't come out yet with a flat fee structure, but with the FinTech battle heating up between algorithmic advisors I believe its an inevitable product/price offering. A billion dollars buys a lot of developer and data scientist time.
Not only that but does it really take double the effort for an invement manager to manage $100B compared to $50B?
No, but you may not be able to find a quality manager to manage the investment for a flat fee
Not sure why you were downvoted, it's true. A market competitor hasn't come out yet with a flat fee structure, but with the FinTech battle heating up between algorithmic advisors I believe its an inevitable product/price offering. A billion dollars buys a lot of developer and data scientist time.
Not only that but does it really take double the effort for an invement manager to manage $100B compared to $50B?
No, but you may not be able to find a quality manager to manage the investment for a flat fee
Why aren't fees capped at some limit? Like...maybe 100 million per year? I'm just curious how much harder it is to manage a $100bn fund vs a $200bn fund. Is it twice as difficult?
why does the compensation need to be tied to the difficulty rather than the assets under management? you haven't actually made a case for that, just assumed it was naturally correct.
TL;DR: "So for instance in U.S. equities the funds got annual returns of 8.24 percent for 10 years, versus annual fees for U.S. equities of about 0.08 percent. So the funds got 99 percent of the returns on their investment, and the managers got 1 percent of those returns. Again, paying managers 1 percent of the returns they generate does not seem particularly egregious to me, though I suppose there's an argument the…
Orly? So you're OK with paying an extra 1% above the market rate on your mortgage? Because that's the kind of thing you're talking about. 1% a year will eat quite a lot out of your retirement over 40 years. I.e. 40%.
> those managers gobbled up more than 95 percent of the value added So they added value above and beyond the benchmark and you're complaining that they expected compensation for this service?
If they underperforming benchmark will they eat the loss?
TL;DR: "So for instance in U.S. equities the funds got annual returns of 8.24 percent for 10 years, versus annual fees for U.S. equities of about 0.08 percent. So the funds got 99 percent of the returns on their investment, and the managers got 1 percent of those returns. Again, paying managers 1 percent of the returns they generate does not seem particularly egregious to me, though I suppose there's an argument the…
Orly? So you're OK with paying an extra 1% above the market rate on your mortgage? Because that's the kind of thing you're talking about. 1% a year will eat quite a lot out of your retirement over 40 years. I.e. 40%.
TL;DR: "So for instance in U.S. equities the funds got annual returns of 8.24 percent for 10 years, versus annual fees for U.S. equities of about 0.08 percent. So the funds got 99 percent of the returns on their investment, and the managers got 1 percent of those returns. Again, paying managers 1 percent of the returns they generate does not seem particularly egregious to me, though I suppose there's an argument the…
Orly? So you're OK with paying an extra 1% above the market rate on your mortgage? Because that's the kind of thing you're talking about. 1% a year will eat quite a lot out of your retirement over 40 years. I.e. 40%.
The fees are 1% on returns not on the "balance" as it where. The total fees as a percent of total invested assets are 0.2% per year.
> In a competitive market for investment performance, managers should charge fees equal to their outperformance. Then what's the value in a fund manager instead of a simple algorithm that follows the market? Would you hire an employee and pay them the entirety of the value they generate for your business? What a preposterous argument.
From a link in the article: " By Matt Levine Here is a simple model for hedge fund fees: 1. There are some people who can reliably generate alpha -- returns in excess of the market return -- but those people are rare. 2. It is somewhat difficult to tell who those people are; in particular, at any given time, there are more people who look like they can generate alpha than who actually can. 3. If you are one of the pe…
Ok, so I'll be the guy on the other side of this hypothetical deal. In the scenario he's described, either I get market returns by paying the elite guy to keep his alpha, or I get sub-market returns by paying too much to a guy who isn't actually elite.
So, best case scenario I get market returns? Then why not just invest in an index fund?
> In a competitive market for investment performance, managers should charge fees equal to their outperformance. Then what's the value in a fund manager instead of a simple algorithm that follows the market? Would you hire an employee and pay them the entirety of the value they generate for your business? What a preposterous argument.
From a link in the article: " By Matt Levine Here is a simple model for hedge fund fees: 1. There are some people who can reliably generate alpha -- returns in excess of the market return -- but those people are rare. 2. It is somewhat difficult to tell who those people are; in particular, at any given time, there are more people who look like they can generate alpha than who actually can. 3. If you are one of the pe…
I'm not sure I understand - what's the benefit to the customer? If you gain alpha from hiring (3), you gain proportion of alpha + alpha. If you hire (4), you're paying a fee of alpha for a gain < alpha. The customer assumes a lot of risk, especially the more common (4) gets. It seems the customer is most likely to lose in this scenario.