NYC Pension Earns $40M Over 10 Years, Pays Fund Managers $2B
I'll be honest and admit this is one area where hedge funds do get gready.<p>Most funds work on a model of 2 and 20, meaning they take 2% of assets they manage to run the fund and then take 20% of the profits as their compensation.<p>This works when you manage 100 million as the 2% can cover most costs, but gets absurd when you manage 100 billion.  In cases like this the 2% gets absurdly big and you just can't hire enough people or buy enough tech to eat up this money.  It becomes free profit, and that is borderline abuse.<p>The idea with hedge funds originally was, we think we can beat the market and we only get paid when we do, out of the 20% of profits that we take.  Essentially we are betting on ourselves and we eat only when we do well,<p>With 2% of 100 billion, it turns out you get paid no matter how well you do.  Venture capital funds are equally bad in this regard:(<p>Pension funds need to be better about negotiation fees.<p><i></i>EDIT<i></i>  Someone asked me what to look for when investing in a hedge fund.<p>There are really only 3 things:<p>1) fees, 2 and 20 is standard and if you are investing a "small" amount, less than 20 million, you should expect to pay this.<p>2) lock up time.  Generally you should be able to redeem at the end of any month with 20 days notice, ie if you want to redeem for May 1st, you need to inform them by April 10th.  No fund should be able to lock your money up for more than a month, though some will try.<p>There is an exception for this in funds that by definition invest in illiquid assets, such as venture capital or real estate that can take a year or more to mature, but even then  90 days is absolute  max you should tolerate. ie if a VC tells you you are locked up for 5 years, and some will, you should tell them thank you and move on.<p>3) track record.  Don't invest in any hedge fund less than 5 years old, unless you have special knowledge or a healthy risk appetite.  Its just not worth giving someone else the chance on your dime.  Most new funds are started by people leaving a fund and if they are good they get seeded by their previous fund, friends and family.  Make them prove themselves before you put yoru money into them.