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Comment by kqr | Hacker News Reader

> A common misconception is that the market cannot be predicted and that hedge fund managers are no better than dart-throwing monkeys. Many academic research papers back up this claim with data.

That's not exactly what the research says. It says that fund managers ask for more in fees than they earn you back in capital gains.

(Which is obvious: if they couldn't charge their customers more than they earn, they wouldn't offer their services in the first place -- they would just invest on their own.)

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> Which is obvious: if they couldn't charge their customers more than they earn, they wouldn't offer their services in the first place -- they would just invest on their own.

This isn't obviously true. Taking 1% yearly of $100,000,000 (compounding) from investors is better than earning 15% yearly on investing your own $1,000,000 (compounding). (Or some similar charging strategy).

That is true, and indeed what happens with some passive index funds, for example.

However, from my experience, when looking for profits, people tend to prefer to arb inefficient markets before they choose to work on larger scales. So if one can choose between charging more than one provides, or charging "fairly" but at giant scales, the first step of the evolution will be the arbitrage.

And you probably shouldn't trust a hedge fund manager who doesn't have his own $1,000,000 tied up on the same fund, anyway.

This isn't strictly true for all, though.

Imagine you knew, 100%, a 20% bounce coming. You may be able to scraggle together a few hundred thousand, maybe a million, and do OK.

Or you can find people with millions or billions in total assets, skim 5% or even 10% off the top, and make out like a bandit.

All of that said, on aggregate, you're probably right.

One way to think about this: as a founder you charge your seed investors, whose capital you deploy, say 85% (preferences notwithstanding). Why wouldn't you do it all on your own and retain 100%? Capital inflow is a multiplier for your efforts, sometimes a gatekeeper too.

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