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New York Discovers Wall Street Charges Fees

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Re: New York Discovers Wall Street Charges Fees

#51

Post by gd1 »

lionhearted wrote: post #37

Surprisingly good article. I wonder if index funds ever get widespread enough adoption that they start to drive prices of the major indexes up and underperform... maybe it sounds crazy right now since institutional investors don't really go for index funds heavily, but if there's a shift on those parameters I could see it happening. Also, I've started to get more down on index funds as I look into them more. An index…

As you rightly realise, we can't have a situation where all money is blindly invested in passive index trackers, since everyone will be following the herd and no one will be leading it.

If active managers are under-performing, then at some point as passive funds grow we will reach an equilibrium point where they are causing such price distortion that they will produce opportunities for active managers to profit from mispricings, correcting the situation.

Re: New York Discovers Wall Street Charges Fees

#52

Post by foota »

wodenokoto wrote: post #49

I'm a bit confused about what the author means when he says that managers should charge equal to the extra value they add to a portfolio. Why should I hire a manager that beats the market, he he charges the amount he beats the market with? Wouldn't that leave me of the same as simply averaging the market?

The idea being that in a perfectly competitive market the risk adjusted return for everything should be the same.

Re: New York Discovers Wall Street Charges Fees

#53

Post by jlebar »

oldmanjay wrote: post #23
oh_sigh wrote: post #19

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. edit: typo

> 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.

Because in a competitive market, the price of a good is equal to its marginal cost? "Difficult" here is being used synonymously with "expensive".

Re: New York Discovers Wall Street Charges Fees

#54

Post by hudibras »

anigbrowl wrote: post #18

One easy trick: Express it as a 10-year cost, rather than an annual cost, and it sounds 10 times as big! This is an increasing and pernicious trend in political discourse.

Goes right along with expressing costs in Really Big Numbers! without giving context. For example, the $200M/year spent on pension fees is 0.2% of NYC's annual budget of $78B.

Re: New York Discovers Wall Street Charges Fees

#55

Post by lifeisstillgood »

dragontamer wrote: post #38
lifeisstillgood wrote: post #32

This looks simple on the outside - is it really necessary to pay a percentage fee when investing this much money? I would suggest that the number of funds in excess of 100bn in the world must fit in a decent sized auditorium. That makes "Unionisation"'of the market quite possible. One could easily see a situation where all the funds just said "50 m pa or fuck off" So my question to HN is - what is so hard (or not) ab…

> So my question to HN is - what is so hard (or not) about making market returns for a fund of this size? Boggleheads have been asking that question for like 40 years. Vanguard funds (which simply pick the top 500 shares, or all the shares... depending on the fund...) outperform something like 85% of actively managed funds. One theory is that modern markets are extremely efficient, which means that actively managed f…

So, and this is a naive question, why on earth does a Vanguard fund charge a percentage for what seems to be very simple administration (sell 1000000 shares in X, buy 100000 shares in Y, make sure VWAP is good).

I mean - if I was a trustee of a million fund let alone billion I would expect to know the baseline level of dumbest simplest possible investing process. That approach seem the simplest.

Re: New York Discovers Wall Street Charges Fees

#56

Post by [deleted] »

lloydde wrote: post #33
astazangasta wrote: post #24

Earlier quoted context omitted.

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%.

You had me right up to the 40%. Could you provide the math there? I think the context of the 1% would be 1% of the interest rate, not the principle.

[deleted]

Re: New York Discovers Wall Street Charges Fees

#57

Post by chris_b »

wavesounds wrote: post #48

The biggest sham is that Wall Street has convinced us all that they deserve to paid in percentages! Sure %0.2 doesn't sound like much until you realize its $200 million dollars a year. Why is everyone so afraid of just hiring a few smart economists paying them $200k each salary? Nobody really beats the market over the long term anyway.

Because there are people who will pay those economists a percentage and they would rather work there?

Re: New York Discovers Wall Street Charges Fees

#58

Post by vijucat »

hudibras wrote: post #54
anigbrowl wrote: post #18

One easy trick: Express it as a 10-year cost, rather than an annual cost, and it sounds 10 times as big! This is an increasing and pernicious trend in political discourse.

Goes right along with expressing costs in Really Big Numbers! without giving context. For example, the $200M/year spent on pension fees is 0.2% of NYC's annual budget of $78B.

Are you sure that NYC has an annual budget of $78B? That's a humongous number for any city, and an outrageous number for a city with a Subway system that is (supposedly still) in a state of disrepair.

Re: New York Discovers Wall Street Charges Fees

#59

Post by cjhopman »

nattaggart wrote: post #11
rodgerd wrote: post #2

> 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.

Even an algorithm has some (although very small) management fee. The cheapest ETFs have an expense ratio of .05%. So from this perspective, it'd make sense to go with the human fund manager who was beating the market and charging exactly his outperformance.

Vanguard institutional plus is 0.02%

Re: New York Discovers Wall Street Charges Fees

#60

Post by cjhopman »

vijucat wrote: post #58
hudibras wrote: post #54

Earlier quoted context omitted.

Goes right along with expressing costs in Really Big Numbers! without giving context. For example, the $200M/year spent on pension fees is 0.2% of NYC's annual budget of $78B.

Are you sure that NYC has an annual budget of $78B? That's a humongous number for any city, and an outrageous number for a city with a Subway system that is (supposedly still) in a state of disrepair.

It is that high. http://www.nyc.gov/html/omb/downloads/pdf/tech2_15.pdf
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