“The dirty little secret of the hedge fund business is that it’s the two, not the 20, that really matters."
The wealthy love exclusivity. That's why they love hedge funds. Like a country club, only the wealthy can get in.
Lots of wealthy investors are fooled every day into dumping their money into hedge funds. Hedge fund managers love to take a lot of risk with OPM (other people’s money). If they do luck out for some period of time, the managers get 20% of the gain, plus, of course, the 2% on assets for “risking their client’s funds”. If manager loses, they still get paid the 2% of assets under management. The client takes it on the chin. Wow… what an honor it would be to join the club!
Even worse is if the fund does miserably and the money is locked up for 5 plus years. It is like a five year annuity for the managers.
Buffett has tried to tell hedge fund investors that they were making poor decisions investing in hedge funds, but, like a bunch of sheep, they keep lining up at the club's gates. Hey, if they want to be sheared, so be it. Have at it.
Let's call the whole hedge fund thing for what it is. It is a transfer of wealth to the managers.
Like a fox in sheep's clothing - I wonder where the sheep's clothing is coming from......?!
