When Hedge Fund Managers Become Business Partners
by sharon rockey
In our earlier newsletters, we explored the complex and vague fee structures of mutual funds and couldn't find anything to indicate that the mutual fund manager was on your side. Those managers get paid based on total assets under management, not on how well they perform for you; never mind that whole other slew of fees you will get charged.
Now let's compare the management of mutual funds to Hedge Funds and see which manager has more incentive to increase your wealth.
Unlike mutual funds, Hedge Fund managers invest a significant amount of their own money into the funds right along with their investors. They charge a clearly defined management fee, plus have a built-in incentive fee structure whereby managers receive a fixed percentage of the profits.
Some Hedge Funds go a step further. The management team at [company name temporarily withheld] a Hedge Fund soon to be offered, offers a pay for achieved performance fee structure. In most cases they do not charge a management fee. Instead they share in the fund's success and distribute 70% of the profits to investors. But they will not receive any incentive compensation unless the client sees a profit.
What seems more reasonable to you? Paying fees to someone for losing your money or sharing in the profits with a partner? When investor and manager interests are the same, you are dealing with someone who has a clear incentive to performÑa business partner as well as an investment manager
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