http://allaboutalpha.com/blog/2006/08/24/why-we-pay-management-fees/ A finance blog about hedge funds, portable alpha and alternative investing. Thu, 09 Feb 2012 19:03:08 +0000 http://wordpress.org/?v=abc hourly 1 http://allaboutalpha.com/blog/2006/08/24/why-we-pay-management-fees/comment-page-1/#comment-95445 allaboutalpha.com: AllAboutAlpha.com Fri, 04 Apr 2008 13:02:24 +0000 http://allaboutalpha.com/blog/?p=198#comment-95445 [...] As we’ve argued before, investors should essentially be paying for tracking error, not simply performance.  Riding betas up and down does not take skill - as author Alexander Ineichen pointed out in his book Asymmetric Returns (see related posting).  In other words, investors should pay active management fees for active management, not simply for a short-volatility strategy (in the case of hedge funds) or an index-hugging strategy (in the case of mutual funds). [...] [...] As we’ve argued before, investors should essentially be paying for tracking error, not simply performance.  Riding betas up and down does not take skill – as author Alexander Ineichen pointed out in his book Asymmetric Returns (see related posting).  In other words, investors should pay active management fees for active management, not simply for a short-volatility strategy (in the case of hedge funds) or an index-hugging strategy (in the case of mutual funds). [...]

]]> http://allaboutalpha.com/blog/2006/08/24/why-we-pay-management-fees/comment-page-1/#comment-200 All About Alpha » Blog Archives » Ineichen: “No Skill Involved” in Managing Most Mutual Funds Thu, 04 Jan 2007 14:58:17 +0000 http://allaboutalpha.com/blog/?p=198#comment-200 [...] We add that too often, (retail) long-only investors aim to “pay for returns” and hail their mutual fund manager as a hero if he simply produces positive returns †even if those returns are the result of easily replicable and extremely cheap market beta. To be sure, “exotic” beta returns may be a small part of the rationale to compensate managers. But we have advocated that investors should pay primarily for “effort” (as revealed by returns that do not simply track the index). Ineichen calls this effort “complexity” and also suggests it should be major element of manager compensation. To beta returns and complexity, he adds “skill” as the third element that deserves compensation. Thus, he proposes the following triangle to understand the fee drivers of various investment strategies (page 76): [...] [...] We add that too often, (retail) long-only investors aim to “pay for returns” and hail their mutual fund manager as a hero if he simply produces positive returns †even if those returns are the result of easily replicable and extremely cheap market beta. To be sure, “exotic” beta returns may be a small part of the rationale to compensate managers. But we have advocated that investors should pay primarily for “effort” (as revealed by returns that do not simply track the index). Ineichen calls this effort “complexity” and also suggests it should be major element of manager compensation. To beta returns and complexity, he adds “skill” as the third element that deserves compensation. Thus, he proposes the following triangle to understand the fee drivers of various investment strategies (page 76): [...]

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