Wednesday 8 March 2017

Compensation for Losing

In what version of reality can most of these 'hedge fund professionals' referenced in the article below, possibly think they are deserving of any bonuses? 

Sure, if the fund you are employed to work on beats its benchmark one year, why not reward this achievement, but if your investors would have been better off investing in a low cost index tracking fund, i.e your advice cost investors money, it's hard to see how you can reasonably justify your claim to a bonus, since you added nothing of value.

When it comes to gambling, there's an old saying:

 “You can't win if you don't play”, or “You have to be in it to win it” 
but there is a contradictory quote:
For most people, when it comes to gambling, they would be better served by following this latter advice, and when it comes to investing, they would be better off by following Warren Buffet's advice, and tracking the indexes.

Here's the article from the pages of CNBC:

Hedge funds, as a group, have a lower return than straight-up market indexes do. But professionals in the industry surveyed late last year still expected to take home better pay in 2016 than they did in 2015 — and an even greater portion think they deserve more.
A majority — 53 percent — of those surveyed said they expected to produce higher overall earnings for themselves in 2016 compared with 2015, according to the 10th annual Hedge Fund Compensation Report. That proportion is slightly lower than the year before, where 56 percent said they were expecting an increase in total compensation.
And during a time where the industry has caught the ire of many investors — including Warren Buffett, who last week described the industry's fee structure as "obscene" — an even greater percentage of fund managers reported being unsatisfied with their compensation for the year. Sixty-one percent of respondents aren't happy with what they made.
The report is based on information gathered in the fall from hundreds of partners, principals and employees from more than 200 of the largest hedge fund names, including Och-Ziff Capital and AQR Capital Management. The study also includes some of the smaller names that encompass a large portion of the industry.
That optimism on pay comes amid another lagging year in performance. The HFRI Fund Weighted Composite Index, which tracks various strategies of hedge fund performance, gained 5.45 percent during 2016. That compared with a 10.5 percent increase in the Standard & Poor's 500 index.
Still, the report showed a greater correlation between fund performance and bonus pay than in years' past. Expectations for those employees in firms with lower performance showed lower bonus expectations, and the opposite was true for employees at high-performing firms.
The report showed that among the highest earners, 80 percent of compensation is expected to come in the form of bonuses, which is consistent with prior years. That said, base pay for the highest levels continues to rise, according to the study.
Almost a third of respondents expected the same total compensation as last year, while only 19 percent said that their compensation would be smaller than last year.
"In view of the industry's lackluster average aggregate performance level, it is interesting that a majority of survey respondents still anticipate positive growth in their total compensation," the report said.

1 comment:

James said...

I have been considering tracking the indices with derivatives. Probably a CFD but not at market top. I don't have spare margin for any near term correction. After a downturn, going in with a 9 month contract and rolling it over at expiry for a number of years.

Needs more research.