New York Discovers Wall Street Charges Fees • Hacker News Board

Re: New York Discovers Wall Street Charges Fees

#61

Post by harmegido » Fri, Apr 10, 2015, 7:34 AM UTC

aioprisan wrote: post #3

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…

I disagree with #2. I'm an individual investor. I can get into vanguard index funds for around a 0.05 fee, depending on the fund. The author estimates that the NYC pensions were paying a roughly 0.25 fee on their funds.

That's a $10 billion customer paying 5X in fees what a small investor like me pays. I think that's insane.

Re: New York Discovers Wall Street Charges Fees

#62

Post by bmelton » Fri, Apr 10, 2015, 7:37 AM UTC

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?

Because they aren't charging the amount they beat the market by, they're a percentage of that.

In your example, you suggest that you could get $100 by using an index, but instead, you hire a guy who gets you $200 for not using an index, and then charges you the $100, and you're no better off.

In the article, you could get $100 by using an index, but instead, you hired a guy who gets you $200, and then charges you a percentage of that, keeping $4 for them to your $196.

Do you begrudge them their $4, knowing that you "profited" $96 on the deal?

Yeah, the math gets uglier when you realize you're talking about much larger numbers, but the clients, e.g., the pension funds, still came out ahead against the index, even after the managers took their fees.

Re: New York Discovers Wall Street Charges Fees

#63

Post by learnstats2 » Fri, Apr 10, 2015, 7:38 AM UTC

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 somebody already hired those people for a fixed wage and is smart enough to charge us a percentage for it?

Re: New York Discovers Wall Street Charges Fees

#64

Post by jevgeni » Fri, Apr 10, 2015, 7:38 AM UTC

harmegido wrote: post #61

aioprisan wrote: post #3

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…

I disagree with #2. I'm an individual investor. I can get into vanguard index funds for around a 0.05 fee, depending on the fund. The author estimates that the NYC pensions were paying a roughly 0.25 fee on their funds. That's a $10 billion customer paying 5X in fees what a small investor like me pays. I think that's insane.

But they aren't buying index funds..?

Re: New York Discovers Wall Street Charges Fees

#65

Post by harmegido » Fri, Apr 10, 2015, 7:40 AM UTC

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.

It's funny because the author did a similar trick.

Vanguard's fees are 0.17. The pension fund paid ~0.25. That's a small difference because the numbers are small!

Actually, that's nearly a 50% upcharge for the fund relative to vanguard.

Re: New York Discovers Wall Street Charges Fees

#66

Post by harmegido » Fri, Apr 10, 2015, 7:42 AM UTC

jevgeni wrote: post #64

harmegido wrote: post #61

Earlier quoted context omitted.

I disagree with #2. I'm an individual investor. I can get into vanguard index funds for around a 0.05 fee, depending on the fund. The author estimates that the NYC pensions were paying a roughly 0.25 fee on their funds. That's a $10 billion customer paying 5X in fees what a small investor like me pays. I think that's insane.

But they aren't buying index funds..?

They should be. There's no way the 5X charge is worth the active management. And yes, I realize that in this 10 year period it was, but that's just variance.

Re: New York Discovers Wall Street Charges Fees

#67

Post by kaybe » Fri, Apr 10, 2015, 7:43 AM UTC

jevgeni wrote: post #64

harmegido wrote: post #61

Earlier quoted context omitted.

I disagree with #2. I'm an individual investor. I can get into vanguard index funds for around a 0.05 fee, depending on the fund. The author estimates that the NYC pensions were paying a roughly 0.25 fee on their funds. That's a $10 billion customer paying 5X in fees what a small investor like me pays. I think that's insane.

But they aren't buying index funds..?

How much would you expect for index funds?

Re: New York Discovers Wall Street Charges Fees

#68

Post by hackercurious » Fri, Apr 10, 2015, 7:43 AM UTC

guelo wrote: post #7

The whole article is premised on the idea that Vanguard's fee is low at 0.17%. But is it really? In a free competitive market fees for algorithmic or mechanical money management would probably be a small flat fee. Vanguard's costs are not proportional to the amount of money under management.

The Vanguard S&P 500 ETF (VOO) has Expense ratio of Expense ratio 0.05%. - this ETF is nearly identical to a mutual fund and it can be traded on the exchange.

Re: New York Discovers Wall Street Charges Fees

#69

Post by sumedh » Fri, Apr 10, 2015, 7:44 AM UTC

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?

> Is it twice as difficult?

You cannot really say its twice as difficult but you can easily say that its more difficult because when you are working with a small amount of money you invest in plenty of small promising companies. When you are working in big money a small profit is not going to affect your results much so you need to find a big fish, its very difficult to find such big fish all the time.

Re: New York Discovers Wall Street Charges Fees

#70

Post by jib » Fri, Apr 10, 2015, 7:50 AM UTC

jevgeni wrote: post #64

harmegido wrote: post #61

Earlier quoted context omitted.

I disagree with #2. I'm an individual investor. I can get into vanguard index funds for around a 0.05 fee, depending on the fund. The author estimates that the NYC pensions were paying a roughly 0.25 fee on their funds. That's a $10 billion customer paying 5X in fees what a small investor like me pays. I think that's insane.

But they aren't buying index funds..?

The argument is they are gambling with just a downside, so why are they not just buying indexed funds, right?

If you lose money on actively managed funds, you lose the money. If you win money on actively managed funds, you get a small part of the win, and give away a large part of the win to the guy who was gambling (how large is clearly a contract question). If the part you give away is too big, you are playing a fools game. The article isnt describing how much was fixed costs and how much were bonuses paid on outperforming funds, so it's hard to tell if they are indeed playing a fools game, but it seems at least possible.

Why pay someone to gamble for you if he will take 95% of the winnings but not eat any of the losses? If this is this because the managed accounts actually under-performed to expectation - ok. If it is because you're paying too big bonuses on exceeding some easy to reach baseline - not ok.

I think that is a reasonable argument. .