Survey finds “death of alpha (and its pursuit) is clearly premature.”
| Jan 13th, 2009 | Filed under: Investment Management Fees, Today's Post | By: Alpha Male |
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If a penny saved is a penny earned, then a basis point saved is also a basis point (of alpha) earned. So fees obviously matter. That’s why consultancy bfinance recently polled institutional investors on their feelings about investment management fees. To the sure disappointment of funds of hedge funds, the firm found that 60% of respondents thought the “value for money” they received from funds of hedge funds was “poor”. In fact bfinance said that “not one said they get good value from FoHFs and only 40% say they get fair value.”
After the drubbing taken by funds of funds during the recent Madoff saga, this comes as no surprise. But single manager hedge funds scored a little better with only 30% saying their value for money was poor. Active long-only equity actually scored worse, with 31% saying their value for money was “poor”. (And according to this Reuters article today, funds of hedge funds aren’t the only ones facing renewed fee pressure).
Not surprisingly, passive long-only investing scored highest, with 70% saying that value for money was good and only 4% saying it was poor. Global Tactical Asset Allocation (GTAA) funds scored lowest with 86% of respondents saying value for money was poor.
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Its a good survey indeed. It does bring out what a investor really wants. Hedge fund managers who would be going through this post need to understand that they need to be more investor friendly and need to prove themselves to earn their performance fees. Why does a loss making fund should be paid management fees.It does not make any sense at least to the investor.