The Asset Class You Have To Buy Right Now If You Want To Lose Your Money

Moneybox
A blog about business and economics.
May 14 2012 4:30 PM

The Asset Class You Have To Buy Right Now If You Want To Lose Your Money

If you're rich and you want to put your money to work earning a low return and making some other rich guy even richer, then it's hard to do better than to invest with a hedge fund. But suppose you're prosperous but not really truly rich. Then Anthony Scaramucci may have just the business proposition you need. His game is to market a "fund of funds" (i.e., a big pool of money that invests in a bunch of different hedge funds) to a mass affluent clientel. In other words "investors who have the $200,000 annual income or $1 million in net worth the SEC requires of 'accredited investors' but aren’t connected enough to get in with a Daniel Loeb or a John Paulson." Scaramucci's example is a successful dentist.

Well, this turns out to be a great way to lose your money:

This year, SkyBridge clients haven’t lost money, but they haven’t seen the kinds of eye-popping returns they read about in the Journal, either. This is partly because of the onerous cost structure of funds-of-funds. For the privilege of investing with guys with recognizable stipple portraits, SkyBridge charges a 1.5 percent annual fee, and passes along a one-time broker placement fee of 3 percent. This is on top of the 2 percent annual fee and 20 percent profit commission charged by each hedge fund in the fund. As critics like Warren Buffett have pointed out, funds-of-funds rarely outperform the market. Over the past three years, SkyBridge’s Series G fund has consistently beat the HFRI fund-of-fund composite index but also fared 48 percent poorer than the S&P 500.
Advertisement

Way back in 1940, Fred Schwed wrote a book with the fantastic title Where Are the Customers' Yachts? A Good Hard Look at Wall Street, and that's always the question.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

  Slate Plus
Working
Dec. 18 2014 4:49 PM Slate’s Working Podcast: Episode 17 Transcript Read what David Plotz asked a middle school principal about his workday.