‘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

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.
Bill Bonner

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