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Komfie Manalo, Opalesque Asia: Investors need to be really confident that the large funds they are
invested with are able to continue to deliver reasonably high Sharpes
consistently in order to justify the high fees relative to the returns,
said David Beddington, founding partner of alternative investment firm
Dacharan during the latest Opalesque Zurich Roundtable.
Bedington said that the fee managers’ charge needs to be viewed relative
to the volatility and relative to the risk the managers are taking on
behalf of investors.
"Just run the math quickly in your head. If a fund is giving you 3%
volatility, and has a Sharpe of two, that’s actually a fair amount of
skill. A Sharpe of two gross with 3% vol, that’s a 6% return if we look
at it very simply. Put a 20% performance and 2% management fee on top,
throw in a few administration costs, and all of a sudden the investor is
paying more in fees than he is getting back. And this is for a manager
delivering a Sharpe of two. If that Sharpe drops to one or a half –
so there is still trading edge there – but all of a sudden the investor
is giving up everything to the manager. If that Sharpe flattens to zero
for a year, the investor is actually giving back in fees a large chunk
of the prior years’ returns.
"Therefore, people need to be really confident that these large funds
are going to deliver these reasonably hi...................... To view our full article Click here
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