3 ms·

Not really. If Index funds become more popular than regular trading becomes more profitable. The opposite of what you say is actually true.

smallnamespace 10y ago
It may make regular trading more profitable, but most asset managers are paid for getting more assets under management, not their fund's profits. So siphoning money away to index funds does put a direct crimp on active managed fund managers' compensation.
- mysterypie 10y ago
  > asset managers are paid for getting more assets under management, not their fund's profits. I've always wondered why they aren't paid a percentage of profits? That would align their interests with the customers'.
  - janpieterz 10y ago
    Or even a percentage that increases by the percentage of profit.
  - OscarCunningham 10y ago
    They're generally paid both. They often charge "two and twenty" meaning 2% yearly of the assets under management and 20% of the profit. (Of course they don't absorb 20% of the losses in a bad year)
    - smallnamespace 10y ago
      That's only hedge funds, which are a small fraction of total fund capitalization.
      - OscarCunningham 10y ago
        What are the percentages of the market occupied by different fund types? Where would I go to look that up?
        smallnamespace 10y ago
        http://www.hedgefundfacts.org/hedge/wp-content/uploads/2009/09/Hedge_Funds.pdf http://www.hedgefundfacts.org/hedge/wp-content/uploads/2009/... Page 4 "Hedge funds as a percent of total: 1.1%"
Tushon 10y ago
Not really. The "who stands to lose" is money managers/financial advisers, assuming they don't want to become a trader or fund manager.
swolchok 10y ago
However, running a consumer-facing actively managed fund and taking a percentage fee becomes less profitable if demand shifts from that product to index funds, because there is less money to take a percentage fee out of.
hx87 10y ago
If you trade with your own (possibly leveraged) funds, sure. If you're trading with other people's money and rely more on asset management fees than profit-sharing, then your personal expected profits fall when index funds become more popular.

smallnamespace 10y ago

It may make regular trading more profitable, but most asset managers are paid for getting more assets under management, not their fund's profits. So siphoning money away to index funds does put a direct crimp on active managed fund managers' compensation.

mysterypie 10y ago
> asset managers are paid for getting more assets under management, not their fund's profits. I've always wondered why they aren't paid a percentage of profits? That would align their interests with the customers'.
- janpieterz 10y ago
  Or even a percentage that increases by the percentage of profit.
- OscarCunningham 10y ago
  They're generally paid both. They often charge "two and twenty" meaning 2% yearly of the assets under management and 20% of the profit. (Of course they don't absorb 20% of the losses in a bad year)
  - smallnamespace 10y ago
    That's only hedge funds, which are a small fraction of total fund capitalization.
    - OscarCunningham 10y ago
      What are the percentages of the market occupied by different fund types? Where would I go to look that up?
      - smallnamespace 10y ago
        http://www.hedgefundfacts.org/hedge/wp-content/uploads/2009/09/Hedge_Funds.pdf http://www.hedgefundfacts.org/hedge/wp-content/uploads/2009/... Page 4 "Hedge funds as a percent of total: 1.1%"

Tushon 10y ago

Not really. The "who stands to lose" is money managers/financial advisers, assuming they don't want to become a trader or fund manager.

swolchok 10y ago

However, running a consumer-facing actively managed fund and taking a percentage fee becomes less profitable if demand shifts from that product to index funds, because there is less money to take a percentage fee out of.

hx87 10y ago

If you trade with your own (possibly leveraged) funds, sure. If you're trading with other people's money and rely more on asset management fees than profit-sharing, then your personal expected profits fall when index funds become more popular.