New York Discovers Wall Street Charges Fees • Hacker News Board

Re: New York Discovers Wall Street Charges Fees

#131

Post by nandemo » Fri, Apr 10, 2015, 3:42 PM UTC

bzbarsky wrote: post #97

nandemo wrote: post #92

Earlier quoted context omitted.

> 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. If you round up 0.08%, it should be 99.9% and 0.1% respectively.

No, because the 0.08% is a percentage of the _assets_. So if your return is 8.24% of assets per year and your fees are 0.08% of asserts per year, then your fees are 0.08/8.24 = 0.0097 of your returns. Or in other words 0.97% of the returns. Rounding gives you the 1%.

I stand corrected.

Re: New York Discovers Wall Street Charges Fees

#132

Post by pktgen » Fri, Apr 10, 2015, 3:49 PM UTC

alextgordon wrote: post #77

obstinate wrote: post #40

Earlier quoted context omitted.

That's really interesting. So you could put $200M of assets into a Vanguard fund and only get charged $40k/y for that. It seems like a very small number when you put it that way.

Which begs the question, how are they really making their money?

Vanguard has an interesting ownership structure where the funds own the Vanguard company. They're basically (but not "officially" as far as I can tell) a non-profit, and that's why their fees tend to be the lowest.

Re: New York Discovers Wall Street Charges Fees

#133

Post by Nicholas_C » Fri, Apr 10, 2015, 3:56 PM UTC

SQL2219 wrote: post #89

This sector is loaded with opportunities to undercut the traditional players.

The problem is you can't just create a startup fund and go in there and take on funds from pension funds by undercutting the establishment. You need loads of expertise, relationships, and a proven track record. And if you have all those things then you are a part of the establishment and already making swell money so there's no point in rocking the boat.

Re: New York Discovers Wall Street Charges Fees

#134

Post by _broody » Fri, Apr 10, 2015, 4:16 PM UTC

dd36 wrote: post #101

zaroth wrote: post #43

Earlier quoted context omitted.

No, they would have earned a lower overall return, net of fees. That's the point of the rebuttal article, the original NYTimes piece was a hatchet job.

The article says 0.20% fees. This here says 0.02%. The article is based entirely on an assumption 10x higher than Vanguard's institutional fees. He declares it cheap relative to mutual funds, which is an absurd comparison. The lower bound of his fee comparison is 8 basis points, which is 4x higher.

Yes. The math in the article bothered me greatly. It seems that to the author, two fees will be "nearly the same" if they are within an order of magnitude of each other, which is ridiculous.

Not to mention the condescension dripping from every word. This piece is a good example of how not to write an 'informative' rebuttal.

Re: New York Discovers Wall Street Charges Fees

#135

Post by bradleyjg » Fri, Apr 10, 2015, 4:27 PM UTC

kaybe wrote: post #67

jevgeni wrote: post #64

Earlier quoted context omitted.

But they aren't buying index funds..?

How much would you expect for index funds?

Vanguard has a total US stock market fund for institutional investors, with a minimum investment of $200M, that has an expense ration of 2 basis points (.02%) The FTSE world ex US fund is 10 basis points and a $100M minimum.

At $57B and $27B invested respectively I imagine the city could negotiate an even better deal if it was going to put all the money in each category into a single fund.

That said, the author of the linked article does have a point. The expense numbers on the public market side don't look outlandish when expressed as an expense ratio rather than a ten year total number.

Re: New York Discovers Wall Street Charges Fees

#136

Post by nattaggart » Fri, Apr 10, 2015, 4:47 PM UTC

cjhopman wrote: post #59

nattaggart wrote: post #11

Earlier quoted context omitted.

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%

Thanks for the correction. Institutional funds were off my radar but they definitely apply in this case.

Re: New York Discovers Wall Street Charges Fees

#137

Post by dreamdu5t » Fri, Apr 10, 2015, 4:49 PM UTC

Why is everyone focused on the fees being charged and not the total idiocy of the city of New York? The real outrage here is New York doesn't seem to know what they're doing with managing pension funds.

Re: New York Discovers Wall Street Charges Fees

#138

Post by ethbro » Fri, Apr 10, 2015, 4:51 PM UTC

evandijk70 wrote: post #87

jib wrote: post #82

Earlier quoted context omitted.

But that is even worse, right? That is paying a fixed price for someone to gamble for you. If you look at it objectively, a more sane pricing model would be that you get a discount on the flat fees compared to what you would pay for a non-managed fund, but with a bonus paid on earnings. The value proposition from the fund managers is that they can significantly outperform a non-managed fund. If that is true, then wha…

While this sounds good in theory, this encourages high-risk investments, that either pay-off enormously or lose everything.

The point of parent is that there would be a discount to the fees based on underperforming the benchmark average.

Followed to conclusion: a big enough loss = fees become negative and the hedge fund actually pays.

Re: New York Discovers Wall Street Charges Fees

#139

Post by blueside » Fri, Apr 10, 2015, 5:05 PM 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.

The same could be said for real estate agents

Re: New York Discovers Wall Street Charges Fees

#140

Post by greedoshotlast » Fri, Apr 10, 2015, 5:15 PM UTC

A missing point:

It is very common for management fees to follow an 2 and 20 Fee Structure.

Meaning they charge a flat 2% to keeps the lights on and pay outrageous salaries. Then above a certain threshold an additional 20% of any profits earned.

Why does this matter?

IHMO this motivates funds managers to accumulate large AUM (Assets Under Management) to make that 2% larger. The fund manager is less motivated to make good returns since he knows he will still collect that 2%. So it might be better to remove the 2% flat fee and simple charge a percentage on the profits earned. This motivates the fund manager to actually generate returns before he makes a buck. Even if the market is going down he will still be motivated to outperform.