Re:The real cause of the financial crisis -- An MIT Blackjac...
by mattmaroon on Wednesday January 14, 2009 @10:31AM
(#433722)
Hedge fund managers get paid more on their performance than on size. Their % of assets under management is generally about enough to keep the lights on. And many hedge fund managers are heavily invested in their own funds.
What he describes with " And money managers are rewarded based on the size of their fund, or the level of returns. The managers do not risk their own money. " sounds more like a mutual fund, though selling out of the money puts does not.
Hedge funds usually carry losses over from one year to the next as well. They're definitely designed to align the interest of the manager and the limited partners much better than mutuals.
In fact, in the long run hedge funds outperform mutual funds by a substantial margin for exactly that reason. He's right that neither have pure investor/manager alignment. The only way to do that is to lengthen the term from one year to 10 or something.
What he describes with " And money managers are rewarded based on the size of their fund, or the level of returns. The managers do not risk their own money. " sounds more like a mutual fund, though selling out of the money puts does not.
Hedge funds usually carry losses over from one year to the next as well. They're definitely designed to align the interest of the manager and the limited partners much better than mutuals.
In fact, in the long run hedge funds outperform mutual funds by a substantial margin for exactly that reason. He's right that neither have pure investor/manager alignment. The only way to do that is to lengthen the term from one year to 10 or something.