Hacker News Reader

Comment by Nrsolis | Hacker News Reader

If you don't think investing billions of dollars skillfully such that you don't lose any of it and earn a risk-adjusted return that's better than your peers is valuable then maybe you should try it sometimes.

These guys manage money for hundreds of thousands, if not millions of people who are counting on that money being there for their retirement or families.

If a hedge fund manager earns $1 billion, you can be assured that he grew his customers investments by something like $4 billion.

For every guy that makes $1 billion, there are a thousand or more that don't get anything close to the salary that a medium-salaried employee at a decent startup gets because they LOST their investors money.

View on HN

> If a hedge fund manager earns $1 billion, you can be assured that he grew his customers investments by something like $4 billion.

Um, no you can't. A lot of hedge funds don't charge performance-related fees. Some of the best performing managers one year go on to be massive losers in another because they're taking so much risk.

Please cite a hedge fund that doesn't charge performance allocations.

And those funds that LOSE money for their investors also don't MAKE money for their fund managers.

> If a hedge fund manager earns $1 billion, you can be assured that he grew his customers investments by something like $4 billion. > For every guy that makes $1 billion, there are a thousand or more that don't get anything close to the salary that a medium-salaried employee at a decent startup gets because they LOST their investors money.

Given the 2/20 rules that a lot of funds follow, that's not strictly true.

If you're managing a $10bn fund, and working on 2/20 (2% fee, 20% performance), you're taking $200m off the front just for managing the money. Regardless of profit or loss, you've got that money.

You're then taking another 20% off of any profits you're making, when you're making them. And then keeping them even if you end up losing money the next quarter, that money's still yours.

That 2% is what you'd get charged by ANYONE with the skill and operations to manage that level of money.

What does skill and operations mean here? It's an honest question; I don't know.

And that 2% is literally for doing nothing then right? You don't make it sound less disgusting now that 'anyone' does that?

Edit: sorry, read another thread of yours that 2% is covering cost; how can it be a % if it is covering cost? Cost goes up when the $ goes up? How does that work? Again, not trying to be annoying here.

You have a lot of posts on this topic and do not seem to have something resembling even a remote understanding of the topic.

> Edit: sorry, read another thread of yours that 2% is covering cost; how can it be a % if it is covering cost? Cost goes up when the $ goes up? How does that work? Again, not trying to be annoying here.

If my business grows, chances are some business-related expenses grow along with it. How is this any different?

> You have a lot of posts on this topic and do not seem to have something resembling even a remote understanding of the topic.

So I can't ask? :) Some people here seem to know and I'm interested so I ask? Weird remark as if the number of posts should indicate deep knowledge.

> If my business grows, chances are some business-related expenses grow along with it. How is this any different?

Along with it? There definitely are businesses that grow linear with their revenue but this seems not to be one of them.

You have some very definitive statements in this thread but also show no knowledge on the topic. I try to not speak strongly from a place of ignorance but do you.

> Along with it? There definitely are businesses that grow linear with their revenue but seems not to be one of them.

I don't know what the second sentence of this means. Are you missing a word in there?

I express opinions (which is what we do here right?). If you read those as 'definitive statements' then I might have phrased them differently if I had known. I tend to talk that way and I try to add 'in my opinion' / imho to stuff but here I guess I did not (enough).

And sure, I don't consider shuffling money around in a way that is actually inaccessible to 'normal people' to make rich people richer (obscenely rich) to be something 'good'. That's my opinion and I guess you can read that in my way of saying things. That said, I am interested in it. And what I read about it (which is indeed what I read online) makes me have those opinions and nothing in this thread makes it less rancid so far. But because I have been wrong I read other opinions and explanations.

The word 'this' is missing from the last sentence, apologies, I fixed it. So my question is; if a hedge fund grows from 5 billion to 10 billion it incurs double the cost of operations? Like, for instance, a software services company would do? If not, then why are the fees a % and not a fixed number based on operational cost, unless it's mere easy pocket filling because 'everyone else does it'?

Do not have the energy to get into a philosophical argument on this but here's an answer to your question:

If a hedge fund grows from 5 to 10bn, it is unlikely to be able to continue its current strategy without returns suffering. You can only throw so much money at something before it stops working. As a result, you need to hire more people to manage the additional assets, you need to hire more operational staff to make sure everything runs smoothly, you need to hire additional investor relations staff to attend to your new investors, blah blah.

Management fees are barely enough to keep the lights on for an average sized fund and if you're a new fund, chances are you are waiving some, if not all fees. If I manage $500mm, that's $1mm in management fees (assuming 2% which is a very liberal assumption). If I raised $500mm, investors are going to want to see a COO, CFO, CCO, blah blah blah. Let's say I hire all of those, I'm the sole portfolio manager and I have a single analyst. Between salaries for all those and random incidentals, there's not much leftover from that $1mm in management fees.

Thanks.

For smaller funds I can definitely see this being an issue. Larger i'm not sure still. But yeah, let's not go into that today. For another time.

For larger funds it's less of an issue from a keeping the lights on perspective but in general and especially now with poor performance, no one is going to keep money in a fund that is losing money. It takes time and a track record to become a larger fund and no one is going to risk all of that to coast on management fees.

> That 2% is what you'd get charged by ANYONE with the skill and operations to manage that level of money.

Also not strictly true. Some of the large funds with (confidence in their ability to perform|managing enough money to not care about massive performance anymore) operate on 1/20 rather than 2/20.

Granted they are skilled at what they do, but I think the point is that they don't create much, if anything of actual value.

Reply on news.ycombinator.com