It should be noted that many (if not all) investors in hedge funds already own significant diversified stock holdings. They likely already own other asset classes with less correlation to the stock market like certain types of real estate.
Just to pick a practical example from recent headlines. Elliott Management undoubtedly points out to potential investors that buying sovereign debt and litigating defaults has little correlation with the S&P 500. So when is building a truly diversified global portfolio an allocation to hedge funds (or PE or VC) is often looked at through the lens of correlation, and not necessarily absolute return relative to the S&P 500.
Their advertising material points out their performance compared to the S&P500, and makes no mention of correlation. I don't think that this typical benefit of a hedge fund is what they're trying to sell. It seems to be a "beat the market with a shiny app" kind of pitch.
Considering they are going after very small investors, I don't think their target customer has much in the way of investments, better yet diversified ones, and probably knows even less about large scale asset management.
I don't know how do they select the 20 names from hedge fund filings (looking only at their long positions, as they don't disclose short positions), but it seems that diversification is not one of the criteria. Virtually all of them are tech (IT/Telecom).
The 0-20% short (using inverse ETFs! [1]) is inactive, so no hedge at all currently on this overexposed portfolio. If (when) there is a large correction it may not be enough to ensure the loses are lower than for the market even assuming that they do it in time (surely it worked well in the backtests).
But hey, it's just 1% and runs (only) on your iPhone!
[1] They track the inverse performance well each day but can diverge over longer periods and have other risks that make them not-so-good as hedges. But anyway is just 20% of the long exposure...
https://www.institutionalinvestor.com/article/b1505qmcspbw8p...
On the retail side, I'm sure using incentive fees is compelling to some potential clients. However, from a compliance perspective, offering a performance-based fee is thought to be operationally difficult. Incentive fee structures with high watermarks or hurdles are not trivial to calculate or grasp. As recently as the 80's, I believe incentive fee structures were outright illegal to offer to non-qualified investors. This is why fees typically are a percentage of assets.
I don't see a problem with it. This scenario, like negative interest rates, or negative electric rates [1], may be counterintuitive and seem odd, but it makes sense if you think about it.
I'd be paying them for losing less money that I would have otherwise, and "losing less" is just another way of saying "gaining more".
[1] Discussed recently on HN in the context of wind turbines in Europe, IIRC
I personally wouldn't go for it at any price, but if you want to, there's no reason to overpay.
Not saying I agree with it, but it is well priced for the space.
If the fund is really that good, they'll take x% of the profits and not charge a fee on capital. You take capital because you're not really that good, and you don't know (like basically everyone else) what's going to happen.
Funds know they can't reliably beat the market, and thus don't offer such structures.
I want a ratcheting fee structure. No capital fees, and no fee if the fund loses compared to its benchmark. The fund only makes money if it beats the benchmark.