Friday, October 27, 2006

It's crazy: there's no close second or third

Michael Steinhardt, one of the most successful hedge fund managers ever, is from the old school. In this WSJ interview, he has a few things to say about how things are today.

Mr. Steinhardt founded Steinhardt Fine Berkowitz in 1967 when he was 26 years old. In the next three decades his fund, later renamed Steinhardt Partners, boasted average annual returns of nearly 25%...

Now, hedge funds that make [4%] over T-bill rates are doing great. It's crazy. That's why the field of money management is today the most highly compensated field in the world times three. There's no close second. There's no close third. And I think the expectations inherent in that sort of compensation are absurdly unrealistic.

...I do think there are a lot of inexperienced mangers running hedge funds today. There are a lot of people who do not have a history of superior performance over a long period. While certainly a long period of successful performance is no guarantee for the future, it gives a reasonable amount of comfort. But the fact that you've got a lot of young people running hedge funds whom I wouldn't be comfortable with, that makes one a little bit wary.

Compare to Charlie Munger, another billionaire and Warren Buffet's longtime partner:

I regard the amount of brainpower going into money management as a national scandal.

We have armies of people with advanced degrees in physics and math in various hedge funds and private-equity funds trying to outsmart the market. A lot of you older people in the room can remember when none of these people existed.

and Carl Fox (Martin Sheen, playing Charlie Sheen's father in Oliver Stone's Wall Street):

Carl Fox: Stop going for the easy buck and start producing something with your life. Create, instead of living off the buying and selling of others.


Anonymous said...

Yes, your right money management today is the highly compensated field in the world many times over. The expectations in that compensation are unrealistic. The consumers are paying the price for that as well.

Anonymous said...

Early adopters - your example is one of them - can make a lot of money. Now, every hedge fund wannabee is trying to do what he did then - of course there is no remaining low hanging fruit. The value to it is if it does get productive resources into higher use, or if it generates new productive resources. I think we are at a point where it doesn't, or at least far less than it used to - so the compensation will be less. And the relative rewards for actually making something ought to go up.

Anonymous said...

So, the domain of money management is only for those that think they know what they're doing? What a bunch of hogwash!!?? I'll believe it if Jim Simons of the world say the same thing.

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