It's Not the Fault of Hedge Fund Managers That They Make So Much Money

Subscribe and get a FREE gift!

In This Issue of Condé Nast Portfolio

Home > Views > Blogs > Market Movers > It's Not the Fault of Hedge Fund Managers That They Make So Much Money

Your Name

Your Email Address *
Send a copy to me

Recipient's Email Address *

Separate multiple email addresses (max 20) with commas.

Subject *

Message

0/1500

Email Confirmation

Market Movers

by Felix Salmon

Main

Adventures With Bear Stearns Stock Why Did JP Morgan Need the Fed's Gua...

Apr 4 2008 10:54AM EDT

Andrew Clavell gets to the point on the subject of hedge-fund managers:

I don't begrudge the General Partners their loot one iota. What the academics fail to understand (choose to ignore?) is that the General Partners' business model is "to raise money at 2+20", not "to deliver alpha". Theirs is a sales job at which they have been particularly proficient.

Clavell's quite right. Given the choice between falling fees and higher alpha, on the one hand, or rising fees and lower alpha, on the other, hedge-fund managers will always go for the higher fees.

In fact, the alpha is irrelevant, since even the managers themselves don't really know what it is or whether it exists. Their job is to persuade investors to hand over lots of money, and the best way they've found of doing that is to talk about this thing called "alpha". It's silly to blame hedge-fund managers for the industry's high fees: the people who deserve most of the blame are the hedge fund investors.

See more in