One of the best ways to find out what an industry thinks of both itself and its clients is to look at how the industry communicates to itself. I came across this piece by Hedge Co an online news source for hedge funds. the title of the piece – How to Get Rich By Starting Your Own Hedge Fund tells you a lot about the motivations of those in the industry. You will note that there is no discussion of investing philosophy, strategy or how to make clients rich – merely the implication that all you have to do to accumulate staggering wealth is to start a hedge fund.
Nobody ever got rich by investing in a hedge fund….
You get rich by running a hedge fund – for decades people investing in hedge funds have been paying for returns that are less than what they could get simply by purchasing an ETF.
Juxtaposed to this piece was an item I saw on Bloomberg about a young hedge fund manager who was taking a different approach to investing other peoples money.
Howard Wang, a former analyst at Ray Dalio’s Bridgewater Associates LP, says most hedge fund performance mirrors the broader market, failing to justify the high fees collected.
That’s why Convoy Investments LLC, the global macro fund he started in November with former Bridgewater software engineer Robert Wu, isn’t charging a performance fee to investors and only a 1.25 percent management fee, he said. The New York-based firm will even manage money pro bono for foundations and underfunded pensions for up to 25 percent of the firm’s assets.
“It’s refreshingly honest,” said Simon Lack, founder of investment firm SL Advisors and the author of The Hedge Fund Mirage: The Illusion of Big Money and Why It’s Too Good to Be True. “There’s some really talented people who do a good job and earn the fees they get, but across the industry there’s a lot of funds that charge fees they probably don’t deserve.”