atans1

Christmas present for a hedge fund

In Financial competency on 25/12/2016 at 10:46 am
Calvera (the bandit chief “farming” Mexican peasants in The Magnificent 7 :

If God didn’t want them sheared, he would not have made them sheep.

Hedge Fund Math as described by NYT’s Dealbook

When do 1.5 and 16 add up to 72?
That’s the riddle confronting investors in Pershing Square Holdings Ltd., the closed-end fund run by Bill Ackman.
The fund has gained 20.5 percent during the four years since it began. After deductions — a 1.5 percent management fee and Pershing Square Holdings taking 16 percent of any gains — investors were up just 5.7 percent. Pershing Square kept about 72 percent of the fund’s gains for itself.
How does that work? Many hedge funds reap far higher percentages of their gains than that stated in their fee structure because when they experience substantial losses, as Pershing Square did, they don’t have to give anything back.
And investors are catching on to the fact that most hedge fund managers share generously in the good times, but are exposed to none of the losses in the bad.
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  1. Usually there is a high water mark clause in the performance fees. If the fund loses money on the year, it does not earn performance fees. In any recovery, performance fees kick in only after the recovery has taken out previous losses. Maybe this one don’t have high water mark.

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