By Arthur Salzer
The topic of investment fees and management expense ratios has become front and centre as of late. However, as when comparing apples to oranges, not all fees and expense ratios are created equal. This realization became even clearer to me five years ago while I was in Chicago meeting with one of the world’s leading hedge-fund managers. I asked what I thought was a simple and standard due diligence question, “What is your management expense ratio or annual fee for your fund”? The answer surprised me.
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“We don’t have a management fee per se,” the head of investor relations told me. “Did you know we have supercomputers we use to trade more stock everyday than the New York Stock Exchange? Did you know our firm has line-of-sight microwave towers from Chicago to Jersey City (where the computers of the NYSE reside) so that we can trade milliseconds quicker than if we used fibre-optic cables? Did you know that our team of analysts meets with 11,000 companies face to face each year to gain precious insight? We also have a $20-billion base, which we leverage six-seven times, which effectively increases our funds capital to $120-$140 billion.”