The Use of Fund Managers

[ewilcox]

I was very pleased to read in the sunday telegraph money section today a long piece on the underperformance of fund managers. A relative of mine entrusted a large sum of money to one firm a number of years ago and as a family we have been shocked by the underperformace of the firm in question. The firm has lost over 70% of the value of the initial investment. (Their last gaffe was to transfer by accident £2500 to their account and then phone up saying that they had made a mistake and could they have their money back. Of course...no problem. We arrange the money to be transfered back taking three days to do. The firm then calls us back saying this is unsatisfactory and we have to do an overnight transfer costing us 25 pounds or so. Shocking....)

Anyway back to my point...what is the point of using fund managers? I can quite see that if you don't know anything about the market then it may make the process of investing simpler but if you know even the basics of the market and how to buy/sell shares I can't think of a single reason why I would want to pay someone else to invest my money. I think the sunday telegraph would agree with me - would anybody else like to educate me on the benefits that fund managers bring to the table?

ew

 

[TWI]

It depends on who is investing your money. Most people cannot spend all their time in the markets. If you have a good manager they will do well as they will have a good understanding of what it is you are trying to achieve with your investment and know better than most how to spread the risk profile accordingly. The problem is that the industry is overrun with complete ******s who do not have a clue what in hell they are doing and only make money for their clients when everything is going up. On the whole this is all they have ever had to do.
Personally I do not have a penny invested with anybody other than myself but then again I spend about 12hours a day sat in front of several screens as a market professional trying to work out what the hell is going on. If I was doing another job I may well try to find somebody I could trust to manage my money.
I would certainly not just give it to some big impressive sounding fund management company with lots of flashy brochures.

 

[Airthrey Capital]

I agree that most fund managers have seriously underperformed. I invested a lump sum with Standrd Life 7 years ago and have had a 14% return. I can make that kind of return in 2 months, not seven years.

However, there is of course one big problem with the traditional fund managers, and that is that they are all long-only funds.

The answer would of course be to invest in a hedge fund.

The problem with that is they are unregulated, and you will need to invest around $100,000 minimum in any given fund.

Hedge funds are of course much more risky than the traditional long-only funds. In fact I would say that British-run hedge funds are more risky for 2 reasons..

1) Many UK hedge fund start-ups are run by UK fund managers who have only had long-only experience, and are therefore not terribly good with their abibilty to run short positions.

2) Other set-ups are run by young academics who have designed trading systems, but who are actually too wet behind the ears to run a business.

Either way, if you have the time, there is nothing better than managing your own money.

 

[stevet]

fund managers will of course lose their clients money - but their expertise is not in making money for their clients -but in losing less money for their clients than if the clients invested their money themselves in stock markets

at least thats the way the regulatory authourities look at it

 

[MGBRoadster]

I'm not able to spend enough time to effectively manage my investments, so I control a proportion myself, and use fund managers to diversify.

Picking a good fund manager is as difficult as picking a good stock. I find Bestinvest useful for rating managers:
http://www.bestinvest.co.uk/manager...oken=&-token.1=99&-token.2=5&-token.3=5&-view

Close Man now have a hedge fund with a minimum £10,000, and Winton may have one with a £5,000 minimum. http://money.guardian.co.uk/investments/fundsbondstrusts/story/0,1456,1212480,00.html

 

[Hughmac]

just wondering if there was any other "profession" where you could inflict 70% damage and still be in business

 

[TWI]

Maybe Politics, particularly these days, or if you are taking an iraqi viewpoint on Dubya.

 

[Airthrey Capital]

just wondering if there was any other "profession" where you could inflict 70% damage and still be in business

Tony Blair's Government?

(Although damage is nearer 90%)

 

[stevet]

Blairlogie

whats your definiton of damage - one of the healthiest economies in the world ?

 

[wisestguy]

I think for most people the problem is time . unless they make it a full time profession , they most likely have to give it to soemone to invest .

probably the best thing for these people is to do the simplest thing and stick it in an interest bearing account of some sort .

Hedge funds could be an answer but as Blair said there are risk involved due to the relative inexperience of UK funds .

If one was to put it into a US hedgie for example , the problem there would be distance and unfamiliarity.

 

[AlexAndrews]

I think MGBRoadster and wisestguy have pretty much hit the nail on the head. As with most things in life, you get out what you put in, so if you don't take the time to investigate the machinations of the stock-market and the style, performance and targets of various fund managers, then you can hardly expect to make outstanding gains by effectively picking one at random. A fool and his money, etc. A little harsh maybe, but fair comment I believe. I don't wish what I have written to sound like any particular reflection on ewilcox's relative(s), but I can't help but feel that it is a sort of "financial natural selection" that we are witnessing generally. The answer, of course, is education in matters financial.

Alex

 

[ewilcox]

I completely agree. the relative i refer too should have changed managers a LONG time ago but because they know nothing about the stockmarket they do not realise just how bad their money is being handled. I've told them many times that they should either change companies or invest the money themselves but so far to no avail.

 

[HiProb]

Money managers or individual investors...its all the same. That is to say that there will be a group that out performs, a group that underperforms and a group whose performance is average. Due diligence is the most important aspect of any investment. Take Man Group for instance, their business model is to buy up hedge funds with great track records and market them. Unfortunately, the fund manager has just sold his fund to Man and is now on a long deserved vacation! Asking the right questions about management style and management itself along with track records are just the foundation of selecting the right manager/fund.

 

[wisestguy]

the other thing is : for the general public , there is what I call an anti - trading / investing culture , in that the system actively discourages one from finding and researching good non - hype information about the markets.

 

[ewilcox]

wisestguy

I think that you will find that is changing now the internet is becoming more prevalent. in the old days the only way people could find out about stocks and shares was by reading the FT and business pages in the times and telegraph etc. if I wanted to test a trading strategy and backtest it 5 years I would have found that almost impossible 10 years ago due to mainly financial constraints. now I can do it in about 5 minutes using the right software. I'm not saying that the public as a whole aren't in the main pretty unclued up about the markets but that the environment is now there such that anybody can find out about it if they want to. I fully expect more and more people to become active traders when they realise just a) how bad fund managers are at their jobs and b) because more and more info will be available for people to allow them to make up their own opinions on whats a good investment and whats not.

ew