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...
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