Julia
In Memoriam
- Joined
- 10 May 2005
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From yesterday's Business section in "The Australian":
One of Australia's most prominent private equity figures, Carnegie Wylie cofounder Mark Carnegie, has hit out at the excessive fees and lack of transparency within his own industry, urging superannuation investors to do more to hold it accountable.
The financier has called for the alternative asset classes - including private equity, venture capital, hedge funds and infrastructure - to be subject to the same rules and regulations as public companies managing super funds, including the requirement to disclose links between performance and executive pay.
Speaking at a SuperRatings conference in Malbourne yesterday, Mr Carnegie said he was aware of investment managers who could afford luxury beach houses on the back of their million dollar management fees alone, despite their failure to outperform the market.
"When you look at some of these base fees, they're absolutely obscene," he said. "There isn't enough pressure for people to disclose this. I know people who'd be shocked in any other industry."
It’s unfortunate that people lose money. What’s even more unfortunate is that people have become particularly accustomed to the idea that losing money is the exception, rather than a real possibility. For a long time, the markets have only gone one way, but it’s the exception, rather than the rule. There is no return, without risk. Many people were more than happy to book exceptional returns (15-20% or even higher) and in fact have benefited greatly from it and now they’re suffering the other side of the coin.Sorry if I was unnecessarily vehement in my support of Sir O's remarks, but it's something about which I feel strongly. I'm just tired of hearing people say how much they are down in their Super and other managed funds since the GFC.
No, perhaps not, but many simply are too lazy or uninterested to educate themselves financially.
I'm not sure how you'd know that 'many people investing in managed funds are a lot more successful than any of us here?
You've chided me for rhetoric, and I will do the same in return over this statement.
Of course, it’s entirely possible that an experienced retail investor with a modest sized portfolio could outperform a fund in any given period. That’s why everyone is at ASF – they desire to be in that position and their dedication is to be admired (and hopefully one day rewarded). The problem is that there are only 24 hours in a day and people’s time may be better spent doing other things. There’s quite a difference in the time taken to dd on a set of managed funds vs becoming a consistently competent trader/solo investor. Aside from time, there are also other reasons an individual might be interested in a managed fund – diversification, access to different asset classes, international exposure, leverage others expertise etc.Agree that the principle of ensuring people put money aside for the future is absolutely necessary. What I'm questioning is that professional fund managers necessarily do better than individual investors who take the trouble to educate themselves and then devote reasonable time to looking after their investments.
As you said, each to their own.Well, that's a matter of opinion. Diversification doesn't necessarily reap better rewards. Personally, I'd rather put more into a sector that's running well, go with that trend, and then exit when it falls from favour.
So does that make him a good fund manager or a bad one?From yesterday's Business section in "The Australian":
I don't suppose it makes clear whether he is himself good or bad.So does that make him a good fund manager or a bad one?
Agree here. Whether it’s a fund or the latest hot spec stock, there is only one rule - caveat emptor. By taking shortcuts, you only risk your own coin.From time to time I just get a bit irritated by all the people who are so critical of how their Super and other managed funds have lost money, but who are not prepared to take some responsibility for their own outcomes, even if this just means understanding the options they might have within the various types of managed/super funds.
It’s been fun. Apologies if I got a bit agitated, but I felt that people were encouraging the OP to write off an option without due consideration for his or her circumstance.Anyway, thanks for the civilised discussion.
OK, fair enough. I doubt that we’re ever going to agree on this – you believe that it’s always best to invest in assets directly and I believe that funds (private equity, index funds, hedge funds etc etc) offer some advantages that may benefit individuals, depending on their circumstances.
For the record, I invest professionally, but hold my personal holdings directly. Each has its own benefits. Why don’t I invest personally in the funds we invest? Mainly because I can’t – we manage our own funds.
I know plenty of funds that make their investors plenty of money, but anecdotal evidence or specific examples won’t really prove anything. Here’s a paper written by University of Chicago’s Booth School of Business that shows that fund managers can/do have a statistical edge over the markets. There are other similar reports I can share from MIT etc, but I don’t have them to hand.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1477586
I was referring to a Morningstar report published around the time of my post – I don’t have it to hand, but you should be able to find it on their website.
Investors are not fortune tellers. Without risk there is no profit. Many funds did make profit (or at least lose less than the market) at the height of the crisis – the obvious example here is Taleb who made a stack for his fund. Other funds did lose money, but most have also recovered exceptionally well. One of the largest asset managers in the world (can’t say who, but they manage several billion) had their best month on record in September and are well up on the year, despite global markets being relatively flat.
Not sure about this example – banks make money on the buy side, on the sell side, for advisory etc etc. But I thought we were discussing fund managers anyway? Yes, fund managers will go bust if they can’t raise monies for new funds, but funds tend to be 3-5 years or longer, so not investing the funds at their disposal in the short term won’t put them out of a job. The main thing that will impact their ability to raise funds in the future is the returns of their previous funds.
How can an individual hedge better than a fund? I guess what you’re asking is can a fund generate alpha returns – there’s plenty of research both ways on this, but take a look at : http://www.create-research.co.uk/pubRes/exploituncert/downloadreport.html
Perhaps because to have moved to cash when the GFC threatened would have cut off the commissions received by the fund managers.Why there are not stop losses in place to avoid things like the GFC killing all the funds is beyond me.
Perhaps because to have moved to cash when the GFC threatened would have cut off the commissions received by the fund managers.
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