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It’s not surprising that Izzy Englander, Millenium Management’s founding hedge fund manager, would dislike the 2% management fee because he doesn’t charge it, so he looks down on funds that do.But it’s unusual that he spoke out against the fees so passionately this morning at the Terrappin Hedge 2010 conference in London.
In fact, usually reticent Englander delivered a mini-speech on the worthlessness of the 2% hedge fund management fee.
He said of the fee, according to Financial News:
It’s gut-less and unnecessary.
“Name me another industry in the world that has a management fee like this. If a manager has skin in the game, why would he create larger costs that are unnecessary.”
Two per cent is a made-up number.
“In the old days the management fee was not commonplace. The business was ultimately run for the bottom line P&L. Investors shared in the business cost rather than an arbitrary pre-established management fee.”
It has tainted the hedge fund industry because managers are now incentivized to maximise assets, not alpha.
“The real problem with the two and 20 structure was that the manager’s incentives changed,” according to Englander. “[Managers became encouraged to grow their businesses and as a result moved into areas that diversify into other areas beyond the ones they knew.]”