‘Obscene’ Hedge Fund Fees Exposed

Forbes calls it, “The Sleaziest Show On Earth”. It is referring to the hedge fund industry.

“Hedge funds will suck in US$100 billion this year from an ever-broader swath of investors,” says the magazine. “Pretty good for a business rife with exorbitant fees, phony numbers and outright thievery.”

We are pleased to see the mainstream media catching on. Hedge funds are a great way for hedge fund managers to make money; they’re a terrible way for an investor to try to make money.

There are a lot more funds than there used to be – maybe as many as 9,000 of them. And a lot of these funds are being marketed to the lumpeninvestoriat. Now, rather than helping the rich lose money, they are helping the not-so-rich get into a serious jam.

“The unwashed masses can get into this volatile sideshow for as little as US$5,000…Among the 1,800 largest US pension funds, endowments and foundations, almost one-quarter held hedge fund investments last year, up from 12% in 2000. US pension funds plan to plow US$250 billion into hedge funds in future years, 20 times the amount of exposure they have now, says researcher Greenwich Associates. Calpers, the US$165 billion retirement fund for California state employees, has invested US$500 million and plans to double the sum.

“What is driving this red-hot industry: fees that would be outlandish or even illegal if extracted from a plain old mutual fund. ‘It’s obscene,’ says Alice Handy, who invested in hedge funds for over a decade while running the University of Virginia endowment. ‘The fee structure is so compelling that everyone and his brother wants to run a hedge fund now.”

The mainstream media is also beginning to understand what a racket private equity is. Moody’s attacked private equity this morning – noting that the PE firms add neither shareholder value nor value to the greater economic community. Supposedly, firms taken private are able to focus their investments on long-term objectives. In practice, the new owner’s outlook is very short-sighted, loading the company up with debt so they can pay themselves large fees, and hoping to get out of town before the posse shows up.

Bill Bonner
Markets and Money

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail Markets and Money.
Bill Bonner

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