Subject: Re: OT: Money Manager Performance Based Fee
But working the numbers, it does not seem like such an advisor needs to generate huge outperformance.
Something like 3% annually more than (you could do, the SP500 will do, a 1% AUM advisor would do) would put you far ahead even after those fees.

The statistics are against it. It could be that this guy is in the 1% who beat the market long term. But unlikely.

Also, they win even if they do not outperform. They get 25% of any gain.

When I retired I put a mid-6-figure 401K with Fisher Investments. About 5 years later that account was not doing any better than the investments I was doing on my own. No reason to pay them $10,000 a year to do the same as me. (Yes, both accounts beat the S&P500.)


charges 25% on profits above high water mark,

What is his high water mark? 3% above the S&P500? 10%? 1%?
Scratch that. They just don't charge the fee if the account is below a previous quarter's amount.

I remember what happened with taxes in the 1999-2000's tech boom and bust. People make a huge capital gain one year and paid a boatload of taxes. Then the next year they lost it all in the bust.
In 2 years they were back to even, or less than even, but the IRS didn't refund them any of the money.


From what I saw of his philosophy (Buffet-like, buying good businesses when they are out of favor), it resonated with me.
"Tom’s nickname on Wall Street is “Turnaround Tom” as he specializes in buying good businesses at great prices."

Have you ever heard anybody say their investment philosophy is to buy bad businesses? No, everybody says they are going to buy winners.
As Mike Tyson said, "Everybody has a plan, until they get punched in the mouth."


I always have a math problem with a small AUM fee.
How much personal attention do you think you are going to get for $10,00 a year? He'd need thousands of such clients to make it worthwhile.
{Ah, AUM $1B. So they do have a lot of clients.}

Something like 3% annually more than (you could do, the SP500 will do) would put you far ahead even after those fees.

If the S&P500 does 10% and he does 13%, he gets 25% of the 13%, leaving you with net 7.5%.
How many of these people consistently beat the S&P500 by more than 3%?



Is it this guy? "Thomas J. Hayes is the Founder, Chairman, and Managing Member of Great Hill Capital, LLC, a New York City-based long/short equity money manager and hedge fund."
Yes.
"Hayes frequently appears as a financial commentator on networks like Fox Business and the NYSE, where he provides analysis on market rotations, interest rates, and stock selection. His core investment philosophy focuses on assessing both short-term market momentum and long-term fundamentals."

So he's like Jim Cramer?

The brochure says 25% of the gains (not above a certain cutoff, of *all* gains) per quarter. No fee if the account is less than the highest quarterly value.

Worse, if they UNDERperform the S&P500 but still make a gain, you pay a fee on the gain. It would gall me no end to get charged a fee on a $5,000 gain when SPY would have given me a $10,000 gain.

"($1,000,000 to $5M) clients will pay an annual fee of 0.00% of assets under management along with
a 25% performance fee based on capital appreciation. If the client's portfolio rises in value, the client will
pay 25% on that increase in value, but if the portfolio drops in value, the client will
not incur a new performance fee until the portfolio reaches the (highest quarterly) value."

I was going to pencil some figures, but it got complicated real fast.
$1M account make 10%/yr. All in Q1, that's $25,000 fee then $0 for the next 3 quarters.
If 2.5% in 4 quarters, that's $6,250 per quarter. Maybe.
What's the base after the first quarter?
Is it $1M +$25,000 - $6250 = $1,018,750?
Next quarter fee will be $6,367.

If there is now a 10% loss, you don't pay any fees until the account recovers, but you are still out the fees they took each quarter.
For them it's "Head we win, tails we don't lose."

They do highlight some details in the brochure. "You will pay fees and costs whether you make or lose money on your investments. Fees and costs will reduce any amount of money you make on your investments over time. "

Ah, " Additionally, you will pay transaction fees, if applicable, when we buy or sell an
investment for your account."

When I was at Fisher they put the account with a full-service broker, who charged full-service commissions. Not the $5 I paid at BrownCo. Something like $65 per trade. Not $0 that the likes of Schwab & Vanguard charge.

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Sorry for going on so long. Goggle one little thing and you are suddenly down the rabbit hole.