Worth a Lot, but Are Hedge Funds Worth It?

mapryan

Interesting article on the New York Times about the proliferation of hedge funds and their charging structures (which I know is a subject of great interest here.)

"The reason hedge funds are a license to print money is their fee structure. A typical fund charges a 2 percent management fee, which means that it keeps 2 cents of every dollar that it manages, regardless of performance. Mutual funds, on average, charge about 1 percent.

On top of the management fee, hedge funds also take a big cut — usually at least 20 percent — of any profits that exceed a predetermined benchmark. "
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(Mr Simons) charges “5 and 44” — a 5 percent management fee and 44 percent of profits — yet he has still been doing very well by his investors for almost two decades."

http://www.nytimes.com/2007/05/23/business/23leonhardt.html?em&ex=1180065600&en=1b5006de37d1369d&ei=5087%0A

Mike

nrsql

They can make a lot of tax savings (for instance) that aren't available to more regualted investment companies. They will be doing a lot of things to shave off the odd point on a deal so they could possibly be worth the extra charges. But then they are higher risk.

benood

The trouble with highwater mark charges is that funds may perform well for a few years earning the managers their 20% cut - then along comes a market crash - the manager sees that they will be years getting up to the highwater mark again so what do they do? Close the fund - great for the investors - not. That's exactly what Soros did with his quantum fund as I recall.