We were more of an exception. It was a small CTA program, but we all felt this was fair as our interests were directly aligned with our investors. We recently launched a fully algo trading system (only our own money for now), once we have proven to ourselves that what was saw in backtest is a reality, we will start raising funds.
Amd that system ensures that traders make huge gambles to try to get a big payout. No big deal if the fund tanks as they get to keep all the money they made in past gambles.
To make sure that doesn't happen, clients should check that the fund manager has a lot of his own money in his own fund. Eat his own cooking. IF the food is poisonous or badly cooked, the chef should suffer just as badly.
Not trying to challenge you and your company but I thought that was how Optionseller.com represented the way they treated their clients' investments?
Because its just one bad year. If you look at their 10 or 15 year returns these guys are returning 15-20% per year. That's why these people keep their money in these types of funds. Its still worth it after all the management fees.
Not really. Instead of no management fee they charged absorbent commissions. I think one of their clients posted here like $70 per round trip. We on the other hand fought tooth and nail to reduce commissions for our clients. They were paying around $5 for round trip.
Institutional investors are actually care a lot about things like correlation and modern portfolio theory, and sometimes not a whole lot about performance in a given arbitrary 12 month period. If a fund has the right kind of variance then when added to a portfolio it can dramatically reduce that portfolio's variance, regardless of that funds actual return in a given year. Hedge fund guys understand this, that's why they get hired to work at hedge funds and why they get bonuses even when people who have no idea what they're pontificating on about think they shouldn't. Understanding modern portfolio theory is a necessary but not sufficient element for success in institution investing, funny enough every time a thread like this comes up it's obvious that at least a vocal minority here have never heard of it.
In fairness, there are plenty of funds that have been producing nothing but noise over the last 5 years or more and yet they managed to keep their AUM. There are plenty of managers that had a lucky strike once or twice and now are milking this in fees. On the other side, pretty much every one of the managers has at least 50% of his PNW invested in the fund. So they are not eating their own cooking, even if it tastes like sh*t.
Agreed, inertia seems to be high when it comes to re-allocating AUM. If a fund fails to meet its stated objectives then criticism is certainly warranted. Just pointing out that those objectives might not always be "show a positive return in every market" as a layperson might assume, so criticizing the industry writ large for that is a bit nonsensical. As is the concept that you fire everyone in a company that's in a high variance business if it loses money in a year, whether that business is hedge funds or selling sportfishing boats. The real irony is that the same people who complain about high pay in high variance industries/positions also advocate for the hair trigger firing of people in those industries, which is a big driver of the demand for high pay in the first place!