I want to clarify my view of investors.
Don't mean to come across as cynical towards people who are successful, successful enough to have extra money to invest in hedge funds.
Not at all. The basis of my thesis of re-wiring pay structures is due to the simple cash-fatiness and waste I see happening in the common HF pay structure.
In other words,
investors are getting too much on their invested money for doing no work to trade out profits.
This depresses the whole industry.
Example: Per every $1,000,000 traded in the markets (and other HF venues) say, for the sake of round numbers, that every year the profit on that $1m is 10%.
Starting off my giving investors 98% ($980,000) is just screwed-up economics.
Plus, giving the trader/HF manager himself only 2% ($20,000) furthers the out-of-whack pay structure dilemma.
Investors are not "hungry" yet they want to keep the MTs starving so they, like a mule, will keep treading out profits for them.
This is universally wrong payment proportions and sound business principles.
And there remains
very little motivation for highly successful and accomplished private traders to enter the HF industry and trade public money, knowing they are going to get a meager 2% for their trading talents and all their hard work.
I know there are one or two well-know HFs like SAC who charge a higher % of performance, but by and large, the overall industry is killing off the best trading talent in the world by its oppressive pay structure even before the best traders enter the business.
The principle prevails: An advanced
private trader who makes 30% to 40% a year on his own private trading account simply does not NEED to run public money at the current pay rates.
Common sense tells you who does need to: The world's worst, most ineffecient and ineffective market participants.
This keeps the $100t dollars in assets in a returns environment that is medeocre
at best.
And whose fault is this?
Read the numbers:
Fat-cat Investors: 98% of profits.
Traders/managers: 2% management fee.
That's stupid economics.
So, in essense, I see the investors' pay as
wasted bloat, as them being
overpaid.
Therefore, I'd like changes made in the industry to make it function more lean and mean.
This will include (but not limited to) longer lock-up periods and greater rewards for competent traders/managers trading profits out of the markets and other viable HF investment options.
As it stands, the risks/rewards are WAY out of correct and right proportion.
The impact and effect that chopping down the bloated overpay to investors will have on the overall asset/investment industry as a whole will be extremely positive.
In closing, I came across the S&P benchmark I could not find the other day, to compare my 29% net profit gain in the last 5-months to.
So here it is:
The S&P 500 was only up 1.39 percent through September and is down 2.83 percent through yesterday. (
source )
sKaLpZ
