Friday, November 21, 2003

Mutual Fund Scandals

Three cheers for Michael Lewis. Lots of people at U Chicago reckon that mutual fund managers aren't worth the money, and have run lots of numbers looking for places where they earn their keep. They don't find any. More worryingly, this seems to also be true in the private equity business, except some people there actually do seem to outperform but then take all that performance back through hefty fees, bonuses, and salaries. Good for them, not so good for the investor. Is it any wonder that most of my classmates were very excited about PE jobs and less interested in the mutual fund business?

Michael Lewis nails the real scandal in the mutual fund industry -- that people waste their money investing in them at all. The really smart money is in the "carry" ("carried interest") of very competant investors who supplement their skills with institutional cash. These guys outperform, and pocket their winnings. The rest of us should have our money in broad index funds and pay accountants to sheild us from taxes.

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