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New York Discovers Wall Street Charges Fees

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Re: New York Discovers Wall Street Charges Fees

#111

Post by allengeorge »

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.

78B does seem fairly large. For comparison:

  NYC (pop. 8.4M): 78B
  Los Angeles (pop. 3.8M): 8.1B USD
  Toronto (pop. 2.8M): 10B CDN
  Chicago (pop. 2.7M): 9B USD
I expected the city's budget to be in the double-digit billions, but in the 40 - 50 billion range.

I wonder if it's something in how the headline numbers are calculated. Toronto splits out its operating and capital budgets, and there are some services like social housing that are (used to be?) cost-shared between the provincial and municipal government.

That said, most people just don't realize (or take for granted!) all the services that cities provide: police, fire, paramedics, garbage/sewer, water, roads and public transit - many of which are highly labour intensive.

Re: New York Discovers Wall Street Charges Fees

#112

Post by SonicSoul »

lionhearted wrote: post #41
toomuchtodo wrote: post #20

Earlier quoted context omitted.

Investment managers almost never beat an index: http://www.marketwatch.com/story/index-funds-beat-active-90-... http://www.marketwatch.com/story/almost-no-one-can-beat-the-... http://www.theglobeandmail.com/globe-investor/investment-ide...

A couple problems with that -- 1. Studies that say "XX% of active managers don't beat an index" include every tiny poorly managed fund. The best attractive lots of capital; Bridgewater has $169 billion under management and has a long track record of large outperformance. 2. A lot of investors aren't trying to beat the market per se -- that's in your own link. If you own safe investments during a bull market, you unde…

these are great points. I'd love to hear more of your criticisms

Re: New York Discovers Wall Street Charges Fees

#113

Post by daniel_solano »

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.

It's not so much that you are paying only for algorithmic/mechanical money management, but there are transaction costs as well. For example, an fund that tracks a particular index will need to buy/sell as the composition of the index changes. Even without that, you still have contributions and redemptions to deal with. Ideally, you try to match redemptions with contributions dollar for dollar, but they won't always match up, resulting purchasing or selling stock (which incurs transaction fees). Of course, there's the administrative overhead of managing a fund (keeping records, filing reports, etc.). As such, you aren't just paying for the algorithm.

Re: New York Discovers Wall Street Charges Fees

#114

Post by SonicSoul »

scott_s wrote: post #109
vijucat wrote: post #58

Earlier quoted context omitted.

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.

"Disrepair" is a strong word. There are problems, but most of the time, it runs smoothly for me. It's an enormous piece of infrastructure that mostly works. That's no small feat.

it's been progressively worse. lately it seems like you have a 60% chance of delays to or from work, and forget about knowing which subway will run on the weekend. http://jalopnik.com/you-are-not-insane-the-new-york-city-sub...

Re: New York Discovers Wall Street Charges Fees

#115

Post by daniel_solano »

kasey_junk wrote: post #110
lifeisstillgood wrote: post #55

Earlier quoted context omitted.

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.

Larger transactions have higher execution costs. Larger funds have larger transactions. It probably isn't the case that there is a linear correlation between fund -> transaction -> execution cost but it is a close enough approximation that everyone is mostly happy.

Additionally, at least with Vanguard, if you have a lot of money invested you get access to funds with lower costs. For example, for $3,000-$10,000 you can VFINX which costs 0.17%, but if you have more than $10,00 invested you can buy VFIAX, which costs 0.05%. For $5M and up, you can buy VINIXm which costs 0.04%.

Re: New York Discovers Wall Street Charges Fees

#116

Post by laurentoget »

yummyfajitas wrote: post #103
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?

It's definitely more difficult. Let me give you an example. I'm currently running an algo that is giving me returns of about 25-30%/year. I do this as a hobby - I don't generally devote more than 10 hours/week to this. Why doesn't NY just give me their money? Why aren't I the greatest investor ever? The answer is that my algo consists of watching the market and picking off liquidity from the top of the book (typicall…

i hope you are having fun doing it, cause at $2/years for 10 hours a week, you're paying yourself half the minimum wage.

Re: New York Discovers Wall Street Charges Fees

#117

Post by dragontamer »

lifeisstillgood wrote: post #55
dragontamer wrote: post #38

Earlier quoted context omitted.

> 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.

> 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).

Because Vanguard's prices are the lowest. Where else are you going to go?

The typical fund charges between 1% to 2%. Vanguard charges 0.05% if you qualify for Admiral Shares ($10,000 minimum). Various ETFs can drop down to that amount, but you still have to deal with tracking error and commissions. $7 per trade typically... while Vanguard doesn't charge commissions if you own a Vanguard account and buy Vanguard Funds (or ETFs).

Re: New York Discovers Wall Street Charges Fees

#118

Post by bmelton »

smcl wrote: post #75
bmelton wrote: post #62

Earlier quoted context omitted.

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 p…

Take the numbers you've used and switch them around slightly to reflect the NYC pensions situation and you can see why they'd be upset. It's not $4 in fees to an additional $96 returned to the client, it's $2billion in fees versus an additional $40m. Scaled back to your example that'd be like hiring a guy who gets you $200, keeping $98 for your $2.

That would be incorrect. I just used numbers that weren't reflective of the article.

To keep (dumbly) using my simple numbers, while still using their percentages, it would be more like this:

You could get $100 by using an index, but instead, you hire a guy who gets you $103 for not using an index, then charge you a $2 fee, leaving you with a "profit" of $1.

At the end of the day, the fund recipients still come out ahead, just not as much ahead as if the managers charged no fees. If you can figure out a way to get people to work for free, and do a good job on top of it, then you'll have surely cracked the code (or reinvented slavery). Until then, it's hard for me to demonize a money manager who charged two percent over ten years, even if it was two percent of a very large number.

Re: New York Discovers Wall Street Charges Fees

#119

Post by czinck »

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.

Part of the reason the subway is so messed up is it's run by the state, not the city, as part of the general state-wide public transit. The city/state relationship is messed up, the debacle of the subways shutting down for only 6" of snow was because the governor mandated it without talking to the mayor.

Re: New York Discovers Wall Street Charges Fees

#120

Post by hudibras »

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.

The $78B budget for the city doesn't include the transit system. MTA's budget is $14B/year, with $7B of that going to NYCTA (the part of MTA which runs the subways and the city's buses).

http://web.mta.info/mta/budget/pdf/MTA%202015%20Adopted%20Bu...

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