Really Rich Guys - Top 10 Traders

[DcifrThs]

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Someone please enlighten me about those compensation schemes.

50% of profits? 3% plus 30% of profits? Wow. Is there a law that prevents these guys from just taking some kind of coin flip (and possibly lie about it) once they have earned the trust of investors?

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possibly... there may be a law forthcoming but this is capitalism and let the buyer beware, right?

this is why betas are so much easier to find than alphas. it's freaking HARD WORK to find an alpha manager who

a) provides you with a diversified return stream

b) does it without incidentally delivering a beta along with it (i.e. a manager whose benchmark is US Large Cap Equities & whose returns are like 80% correlated to the benchmark. in this case, the manager is really not delivering his tactical decisions. he is delivering basically the same thing as investing in US Large Cap Equities plus a little deviation)

and,

c) is likely to continue delivering that return giong forward. i.e. a manager with a deep understanding of risk and how to think about the forward looking estimates. i.e. the exact opposite of LTCM. they looked back and said "well, XYZ hasn't happened before, therefore, i'll ignore the possibility of it happeneing in the future"

so basically, it is a seller's market in some ways. hedge funds offer a way for investors to hit return targets. it is upon the shoulders of investors to make sure that those return targets are not ill-gotten. (on a side note, that is a separate issue: that investors think in return targets rather than risk budgets).

Barron