You work in a fund with high integrity and display fairness to clients. Is this a usual compensation practice among CTAs or are you more of an exception?
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.I could not agree more with you. This is exactly how we ran our CTA program. Purely performance based off high water mark.
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.
Not trying to challenge you and your company but I thought that was how Optionseller.com represented the way they treated their clients' investments?I could not agree more with you. This is exactly how we ran our CTA program. Purely performance based off high water mark.
The most painfully obvious question, in my mind, is why the fuck are these guys get bonuses for going negative? Why are they rewarding shitty performance?
In a regular job, which 99.9999999999999999% of the American workforce is in, nobody gets a raise or bonus after a year of doing very very poorly, so much so that they cause a business to lose money. In fact, they usually get FIRED.
Instead these guys get less of a pat on the back, but a pat on the back nonetheless? "Hey, great job trading desk, you guys lost 10% of our clients' monies! Super! Here's a bonus on top of your salary for that!"
Not trying to challenge you and your company but I thought that was how Optionseller.com represented the way they treated their clients' investments?
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.The most painfully obvious question, in my mind, is why the fuck are these guys get bonuses for going negative? Why are they rewarding shitty performance?
In a regular job, which 99.9999999999999999% of the American workforce is in, nobody gets a raise or bonus after a year of doing very very poorly, so much so that they cause a business to lose money. In fact, they usually get FIRED.
Instead these guys get less of a pat on the back, but a pat on the back nonetheless? "Hey, great job trading desk, you guys lost 10% of our clients' monies! Super! Here's a bonus on top of your salary for that!"
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.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.
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!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.