Buffett: Why Is Hedge Fund Returns Low?

According to MarketWatch 17, occasional news that hedge funds are running against the market index may surprise you.

But Buffett will not.

According to data from Hedge Fund Research, there are about 417 hedge funds that have been liquidated in the first half of this year, and 864 hedge funds closed last year.

If a hedge fund manages $20 billion, the income is $400 million.

Buffett pointed out that because of 2% of the fixed fee, fund managers have no reason to care about how to get 20% of the profits.

On the contrary, these funds only make themselves rewarded for their scale.

As a result, the vast majority of hedge funds last for about five years and lose 1/3 per year - which is no longer surprising.

So why not hedge fund business? The worst thing that could happen is that you earn millions of dollars, then close down and get another job.

The best result is probably billions of dollars.

In the first 9 months of this year, the average return of hedge funds was 0.7%.

From June to September, the average yields of hedge funds were -1.23%, -0.47%, -2.27% and -1.07% respectively.

Reported that

Managers listen to two mentors: their customers and themselves.

Buffett said this sounds like a solid combination of interests, but it is not.

This is because hedge fund managers get profits or losses.

。

The fixed fee charged by hedge funds is a real tool for making money, rather than a "bonus" derived from the performance of the fund under the contract.

In a word,

He expressed his views on various active managers.

Their business is not going to win the market.

Their business is attracting assets - that's all.

For example, a hedge fund, which manages $1 billion in assets, charges 2% of these assets each year as a handling fee, plus 20% of the profit of the paction.

Assuming that the fund is not profitable, there will still be a handling fee of $20 million.

Buffett warned that short-timers, who tries to cheat money in the system, is also common in pensions.

No one knows these costs (fixed fees) until the loss is revealed.

This is the main reason why Americans can't extricate themselves from their annual pension investments.

The answer lies in lowering the handling fees, allowing stocks and bonds to do what they should do.

Prudent low cost management can enable customers to get the largest share of revenue, while high cost and actively managed fund marketing will only achieve the opposite goal.