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Note the blurring of hedge funds and mutual funds. The word "funds" is used indiscriminately. Hedge funds are the ones that charge a percent (typically 20%) of the gain and give back nothing for a loss, with a high water mark.
In contrast, mutual funds are allowed to have symmetric performance-based fees, which is all he's proposing. They're often called fulcrum fees. A really nice, very detailed (legal/accounting) six page writeup for wonks can be found here.
So this is nothing new. Fidelity has lots of funds with performance based fee adjustments, though the size of those adjustments is minuscule.
Further, looking at Adams' "paper" (a two page pdf), one sees the statement: "Sharpe demonstrated many years ago, using basic arithmetic, that investment management is a zero-sum game: half of all actively managed dollars must outperform and half must underperform, gross of fees"
That's just plain wrong. The mean average return of actively managed dollars must match market performance (before fees). You could have lots of dollars winning a little (relative to the market), and a few dollars losing a lot. It is possible for most dollars to outperform.
I consider suspect a paper that would include such a basic arithmetic misunderstanding.
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In contrast, mutual funds are allowed to have symmetric performance-based fees, which is all he's proposing. They're often called fulcrum fees. A really nice, very detailed (legal/accounting) six page writeup for wonks can be found here.
So this is nothing new. Fidelity has lots of funds with performance based fee adjustments, though the size of those adjustments is minuscule.
Further, looking at Adams' "paper" (a two page pdf), one sees the statement: "Sharpe demonstrated many years ago, using basic arithmetic, that investment management is a zero-sum game: half of all actively managed dollars must outperform and half must underperform, gross of fees"
That's just plain wrong. The mean average return of actively managed dollars must match market performance (before fees). You could have lots of dollars winning a little (relative to the market), and a few dollars losing a lot. It is possible for most dollars to outperform.
I consider suspect a paper that would include such a basic arithmetic misunderstanding.
Here's Sharpe's brief paper. It's a (relatively) easy read for those arithmetically inclined.
https://web.stanford.edu/~wfsharpe/art/active/active.htm