Scrutiny Give Edge to Hedge Funds
Jul 4th, 2006 | Filed under: Investment Management FeesBy: Chet Courier, Bloomberg News
Published: August 5, 2005
Excerpt:
“Ross Miller is out to change investors’ ideas of what’s a bargain and what isn’t in money management.
“When you consider carefully what you are paying for, he says, hedge funds may not look as costly as they are often portrayed – and mutual funds may be “more expensive than commonly believed.”
“New research by Miller, a professor of finance at the State University of New York at Albany, may find its main audience among professionals. But its way of looking at fund costs can serve as an eye-opener for individual share owners too.
“The standard image of hedge funds, or private partnerships designed for the wealthiest investors, casts them as high-cost propositions, with the typical manager charging 1 percent to 2 percent of assets per year plus a 20 percent slice of the profits. That stacks up unfavorably against fees of 1 percent or less at some popular mutual funds. Miller says this comparison is flawed.
“‘Mutual funds appear to provide investment services for relatively low fees because they bundle passive and active funds management together in a way that understates the true cost of active management,’ he writes in a working paper. To get a more accurate picture, he said on the telephone, “you cut the stuff in parts and reallocate the dollars.”
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