Sunday, September 28, 2014

Does your asset manager have a substantial stake in the fund he manages?

I first wrote about the Eurogeddon investment fund - the one betting on the collapse of the European Union - in February 2012. Now it is -62% down.


I was nonplussed by the simulations presented by the fund marketing team.

The execution strategy employed also seemed too much aggressive to me, especially taking into consideration the nature of the bet.

Nassim Taleb in his "Antifragile" book, stresses the importance of the convexity (i.e. a favorable assymetry) of the trades.

Convexity doesn't make you an automatic winner, but limits your loses and increases potential profits, when situation turns in your favor.

Otherwise, you risk turning your portfolio into a zombie with virtually no chance of raising up:

Many money / asset managers are not better in investing than monkeys, but usually they charge pretty step fees for their services.

Is there anything that can be done about it?

One possibility is to make asset managers to invest substantial part of their net worth into the funds they manage.

I am pretty sure they would be a little bit more careful with the investments they make... And it would not neccessarily diminsh the returns.