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Hedge fund managers are charging too much for not enough, according to short-selling legend and 30-year hedge fund veteran Jim Chanos of Kynikos Associates.
“Really, it’s befuddled me, and I’m in the industry … how the industry’s gotten away with the high fees for so long for what in effect is beta, market exposure,” he said on Hard Pass, a podcast I host with my Business Insider colleague Josh Barro.
Hedge fund fees have been a hot topic of late as 2016 has not been kind to hedge funds. The idea is that these funds are compensated richly for delivering “alpha” – returns better than the market, no matter what the market is doing.
But since this hasn’t been the case lately, investors are starting to question whether the funds are worth the fees.
“There’s a bigger problem here for Wall Street … the move to index funds,” Chanos said.
“In effect, with the massive reduction in fees, more and more people can basically be the market and it increasingly becomes if you’re not delivering alpha you’re being compared to something that is an infinitesimal, small part of the fees you’re charging, and that’s a pretty tough competitor.”
He explained that hedge funds do OK when the market goes up but really take a beating when it goes down.
“Where do I sign up for that bad deal?”
Listen to the six-minute interview below: