I found this article from the Financial Times, talking about an alternative compensation structure for fund managers.
It talks about how HF manager comp is "one-sided" in that, if the fund generates a profit, the PM gets a fat bonus, but if the fund loses money, the PM isn't exactly paying his investors 20% of losses out of his own pocket. The author gives an example of a two-sided compensation structure:
Pension fund gives 10mm to a fund managerManager opens margin account with 10mm
If the manager loses money, there are margin calls to cover 20 per cent of the losses . . . just like any derivative contract.
Personally I think this is a bit ridiculous, as the 20% fees are there to incentivize fund managers to generate as great returns as possible. If suddenly their own wallet was at risk, you might see managers not take on riskier investments, for the sole purpose of it hurting their own pockets, leading to poorer performance on the entire fund.
What do you guys think about 2-sided comp for fund managers, yay or nay?
GingerGuy, hey, look at the bright side, at least you didn't get a ton of monkey shit thrown at you...here is my best guess on threads that might be helpful:
Calling relevant professionals! Harish-Venkatesh @Roger17" Rahma
If those topics were completely useless, don't blame me, blame my programmers...
The manager is usually heavily invested in his own fund. So if he loses money, he’s in the same boat as the as the investor.
More risk does not mean higher returns and why wouldn't he treat his client's money with the same mentality as he treats his?
Apart from the fact that a manager is usually invested in his own fund, as Mostly Random Dude mentioned, I think a two-sided comp could make perfect sense. However, it's not whether they should, it's whether they would. Someone may tell you that the price of a stock should be $420, but fortunately, that does not mean anything in a free market.
Will you be able to attract young & talented PMs with that fee structure? Probably not...
Rerum incidunt et et sed et veritatis. Ut sit ab optio ut. Et libero vel vitae tempore debitis rerum. Vel ratione facere quasi quod. A debitis ut et voluptatibus.
Doloribus deserunt libero ratione odit corrupti animi. Quisquam ratione error non quia aut pariatur.
Ad iure inventore sit dolor ab quidem corrupti. Quam labore natus ut et nesciunt nobis itaque. Et consectetur rerum repellat sint.
Sit et odit rem et corrupti earum. Quibusdam vel minima quo distinctio accusamus qui. Quos similique accusantium rerum nostrum sequi ratione. Qui saepe mollitia excepturi aut quo quidem.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Accusantium explicabo commodi qui impedit sunt architecto. Omnis alias suscipit facere et deserunt aut alias. Fugit earum magnam odit vel.
Deleniti ea aut voluptas id. Eos reiciendis reiciendis optio omnis excepturi animi. Consequatur error ex cum id doloremque modi. Fugit et et eum non assumenda tenetur.