I was somehow unaware that hedge fund fees have somehow gone up! This shit is insane, institutions pay a 7% management fee plus 20+% of returns to earn 10% when VTSAX returns 26%. What the fuck is wrong with the people agreeing to this? Oh and you have very limited liquidity.
Instead of the traditional “two-and-20” structure where investors were charged 2% of fund assets and 20% of any profits generated, multimanager firms charge investors the costs of running the funds, such as signing bonuses and technology.
Under this so-called pass-through fee model, investors on average pay expenses equivalent to around 5% of fund assets, plus performance fees, according to a Barclays investor survey. In some cases, expenses can amount to more than 7% of assets, the bank found.
Also I don’t short stuff for well discussed reasons but Arbor Realty Trust is absolutely going to zero. I work in this industry and they are beyond fucked.
I discuss this with hedge fund finance bros now and then. Their response is generally “You don’t buy the hedge fund to outperform VTI in a bull market, you buy it to minimize your losses or even make gains in a bear market”. At that point, I mention that they still lose vs VTI in the long run and it’s all argle bargle from there.
Not only do they still lose, they lose by a ton! And large institutional investors should be the most willing and able to ride out the swings. It is total insanity.
The other funny thing is that most of these hedge fund bros have personal retirement accounts full of VTI and such. I know it is in large part because they can’t invest in anything related to their work, but it’s still amusing.
One thing I have observed in the Canadian institutional market is the following (which I think generalizes to the US):
Products like hedge funds are sold in the “exempt market”. The exemption here refers to some, but not all, of the protections that the securities law provides to retail investors. Retail investors are justifiably considered to be morons that need to be protected from themselves. Generally to qualify to buy an exempt market product the investor has to have a lot of money. The idea is that investors with lots of money have the (theoretical) capacity to seek advice.
Plenty of institutional investors, especially pension plan committees, are just as dumb as retail investors and should be terrified of exempt market products.
Investments sales people have realized that they can turn the whole thing around. Instead of positioning the exempt market status as a blaring alarm screaming WATCH OUT INVESTOR THIS PRODUCT IS EXEMPT FROM CERTAIN REQUIREMENTS SEEK INDEPENDENT ADVICE, they cleverly position the exempt market status as a product feature that means this is a Very Special Product that is only available exclusively to Very Special Investors. Let us check with our back office folks, pension plan, and see if you are eligible for this Special Offer. Keep your fingers crossed!
Humans are hard wired to receive this pitch. Just about every institutional or high net worth investor I’ve ever met clung to their exempt market status like a badge of honor, or a special golden ticket to access the exclusive club of exempt products. They LOVE that their hedge funds can’t be purchased by peasant retail investors. ETFs are for normies, exempt market alternative private funds may cost 7% per year but that’s because they are Very Special and Exclusive, dontchaknow.
This definitely resonates with me. Not sure about Canada, but, in US-centric discussions, I’ve often seen seen these standards referred to as “sophisticated investor” rules, which really gives that aura of exclusivity you talked about.
Definitely. Here is some background on Arbor. They made high leverage floating rate loans to people with zero experience. Now interest rates have doubled and their borrowers (who have none of their own money in these deals) are defaulting left and right. Some background:
Wife filed for divorce too…maybe she realized just how dumb her spouse was. It’s obvious to me being in finance that what he did was a huge no-no and would easily be caught. Would it be extremely obvious to someone in marketing for a clothing company(it said he was in an industry without a regulator, so I picked one at random)?
I’ve seen way too many scumbags escape in business to be 100% sure of anything but I am very sure their borrowers are defaulting left and right and that they’re manipulating the data. You can’t make floating rate loans at 85% LTV and get repaid when interest rates double. You can hide it for a while but eventually there will be massive losses.
Also they loaned against the shittiest real estate possible. Not all apartments are created equally, these properties are in disrepair and in crappy neighborhoods. And their borrowers are literally people who took a weekend course on getting rich in real estate who have never worked in the industry.
Man how do you work for (checks notes) BRITISH PETROLEUM and think the play is to…tell on yourself.
Loudon confessed to his wife more than a month after he sold the stocks, according to a complaint the SEC filed in federal court. He said he wanted to make enough money so she didn’t have to work long hours anymore. She moved out of the house and later filed for divorce.
His wife was stunned by the revelation and reported it to her boss, according to the SEC. The company placed her on administrative leave and eventually fired her despite finding no evidence she knowingly leaked the acquisition to her husband.
