Included below is an excerpt of Andrew Beer’s article published on June 20, 2016:
It’s hard to pick up a financial newspaper these days without seeing some sort of piece on a purported hedge fund disaster. There are a number of reasons, I surmise, that this is the case:
The “rich guy gets hammered” trope sells papers. For every fund down 20 percent, a different one is up 20 percent. There’s a cottage industry of people who run around trying to find the next calamity.
High fees − justifiably − lead to high expectations. When you pay 2-and-20, you should expect magic. Reveal the wizard as human, and disappointment and anger inevitably follow.
Zero-interest rates make high-fee strategies look terrible. Cash plus 4 percent with bondlike volatility and low correlation to traditional assets is a valuable diversifier. The problem is that today cash plus 4 percent is only 4 percent. That seems pretty paltry after you’ve paid 3 percent or more in fees.
Bull market equity returns are a terrible point of comparison. The next 30 percent-plus drawdown in equities will be a great equalizer across strategies. Procrastination has paid off handsomely.
Many articles miss the point.
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