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I'm calling bullshit on this guy being who he says he is (a former hedge fund manager) based on the following two passages: "I would estimate 90% of hedge fund

I'm calling bullshit on this guy being who he says he is (a former hedge fund manager) based on the following two passages: "I would estimate 90% of hedge funds commit crimes along the way." No way. It's a material number, but it's not 90%. Even if the author is using "hedge funds" here to refer to "long-short equity hedge funds"; the latter are often quite sketchy and operate close to the line in terms of hiring consultants who basically traffic in insider information. But the 90% estimate is asinine hyperbole. "The 20% is the percentage of profits that the hedge fund manager takes. So if a one billion dollar hedge funds returns 10% (about the same as most mutual funds on a good year), then the profits are $100 million and the hedge fund manager makes an extra $20 million for himself (20% of $100 million)." NOOOOOOO NONONONONONO. The 2/20 fee structure gives GPs 20% of the carry above a specified hurdle rate that is usually in the mid-high single digits. So, in this example, if the hurdle rate were a relatively industry-standard 8%, the GPs would have earned $4mm. Not $20mm.

matco11 10y ago
There are several things that give away that he is unlikely to have been a real hedge fund manager (oh well, maybe he managed $5mm of friends and family money, but that does not make him a pro!), but what he says on the fee structure is not one of them: several hedge funds would have the standing to claim 2/20 (or even more) without hurdle rates. A tiny fraction of hedge fund managers would be infringing any laws, if at all. Excluding the over-the-counter markets(!), the better you are as a hedge fund manager, the more you know what can make you money, what can lose you money and which of your decisions were wrong and which were right: there is no room to blame it on other people doing insider trading.
- leroy_masochist 10y ago
  Interesting, I'm not familiar with any funds that have no hurdle rate whatsoever. I've heard of some that have what people in the industry describe as arrogantly low hurdle rates (like in the 3-4% range), but have never heard of a situation where there is none at all. I agree with you that there might be a few funds that are considered so hot that their GPs could get away with not having a hurdle rate; do you know of any by name? FWIW, my understanding is that if you're a super-in-demand fund, the power move is keeping the same hurdle rate in place (maybe even raising it as a demonstration of confidence in your skills as a money manager) and also raising the carry rate. In other words, going from a 2/20 structure with an 8% hurdle rate to something like a 2/33 structure with a 10% hurdle rate. I believe a few of the Tiger baby funds have done this.
1812Overture 10y ago
The author is a pretty well known guy: https://en.wikipedia.org/wiki/James_Altucher https://en.wikipedia.org/wiki/James_Altucher
- toephu2 10y ago
  ...largely from him just peddling himself on the internet

matco11 10y ago

There are several things that give away that he is unlikely to have been a real hedge fund manager (oh well, maybe he managed $5mm of friends and family money, but that does not make him a pro!), but what he says on the fee structure is not one of them: several hedge funds would have the standing to claim 2/20 (or even more) without hurdle rates. A tiny fraction of hedge fund managers would be infringing any laws, if at all. Excluding the over-the-counter markets(!), the better you are as a hedge fund manager, the more you know what can make you money, what can lose you money and which of your decisions were wrong and which were right: there is no room to blame it on other people doing insider trading.

leroy_masochist 10y ago
Interesting, I'm not familiar with any funds that have no hurdle rate whatsoever. I've heard of some that have what people in the industry describe as arrogantly low hurdle rates (like in the 3-4% range), but have never heard of a situation where there is none at all. I agree with you that there might be a few funds that are considered so hot that their GPs could get away with not having a hurdle rate; do you know of any by name? FWIW, my understanding is that if you're a super-in-demand fund, the power move is keeping the same hurdle rate in place (maybe even raising it as a demonstration of confidence in your skills as a money manager) and also raising the carry rate. In other words, going from a 2/20 structure with an 8% hurdle rate to something like a 2/33 structure with a 10% hurdle rate. I believe a few of the Tiger baby funds have done this.

1812Overture 10y ago

The author is a pretty well known guy: https://en.wikipedia.org/wiki/James_Altucher https://en.wikipedia.org/wiki/James_Altucher

toephu2 10y ago
...largely from him just peddling himself on the internet