Is the 130/30 price right?
Nov 28th, 2007 | Filed under: 130/30, Investment Management FeesFor decades, the climax of the US game show The Price is Right has pitted two contestants against each other as they try to guess the value of a large package of prizes. It’s called the “Showcase“. Showcase contestants have to guess the fair value of a smorgasbord of prizes. Problem is, there are so many prizes that it’s virtually impossible to juggle all the moving parts. In desperation, contestants invariably turn to their relatives in the audience for help (although they can never seem to quite understand the emphatic hand signals their families flash at them amongst the cacophony of hoots and hollers that fills the studio during this segment).
Institutional investors are probably feeling the same confusion about 130/30 fees. There are so many moving parts, no common standards and a lot on the line.
With hybrid investment products such as 1X0/XO, concentrated funds, and alternative beta funds blurring the lines between alpha and beta, comparing prices (fees) between funds is becoming more complex than ever. Earlier this week, we covered a new academic study that attempted to back-up performance fees to analyze the behavior of hedge funds’ gross returns. We’ve discussed how temporary fee cuts during rough spots may be nice for investors, but can provide managers with a much needed tail-wind on returns. And not long ago, we suggested that it was feast and famine in the investment management industry, depending on whether you were a provider of alpha or beta.
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