Barry Ritholtz on Fund Fees

Yesterday, Barry Ritholtz had an incisive column on the evolving nature of fees in the investment world.

Today, he added:

I (of course!) ran long, and the editors cut my blathering down to a more manageable 800 or so words. But some background of how this came about, along with a few things that did not make the final cut are worth sharing.

First, Peter Boockvar introduced me to Andrew Wellington a while ago (Andrew is Lyrical’s CIO and co-founder). I have been mulling over his thoughts for a while. Lyrical charges a 0.75% management fee, and 25 percent of the outperformance versus the benchmark (there is also a bigger cap weighted 0.45% + 25% of alpha version).

I like the 0.75% + 25% of alpha versus 2.00% plus 20% of beta + alpha

And, the combination of outperformance and $9 billion in assets impressed me, making me think these fees could be a bigger force in both active management and alternative investments.

Exchange traded funds are not immune from this fee pressure either: I also spoke with Eddy Elfenbein, who manages the first ETF that charges a variable fee. The active concentrated CWS (Crossing Wall Street!) fees flex as they either beat its index or not. He is aligned with his shareholders in that he makes less when his model does not out-perform. “I wanted to show our investors that I have skin in the game, and my interests are aligned with theirs. If we beat the index, I get a bonus. If we fall short, they get a savings. It’s that simple.”

Posted by on May 10th, 2018 at 9:25 am


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