Being overpaid is theft you can get away with. It would certainly be nice to be grossly overpaid for a change. According to Unigestion Holding SA, which invests $2 billion in hedge funds, nine out of ten hedge-fund managers are overpaid because management fees do not reflect falling interest rates. The fees, which still make up as much as 2 percent of a fund’s assets, represent a disproportionately high share of the total remuneration unrelated to performance, Nicolas Rousselet, head of hedge funds at Unigestion, told Bloomberg News in a phone interview on 11 Sep 2014.
According to a Deutsche Bank AG survey published in February 2013, the industry traditionally charges about 20 percent on performance and 2 percent on the total assets. The fees are coming down as investors paid an average 1.69 percent last year almost unchanged from 2012. Singaporean data provider, Eurekahedge Pte, said global hedge funds returned 8.6% in 2013 and 6.9% in 2012, compared with 10% to 21% in nine of the 11 years through 2010.
Based on Rousselet's comments, interest rates had been the basis to set the fees for fund managers. If fund managers can't do better than the going interest rates, investors had a risk free alternative. Conversely, fund managers should not be taking a haircut if interest rates are declining. Manager who can out perform the risk free interest rates should continue to be paid what they deserves.
Singapore is considered a laggard to the casino industry in comparison to her neighbor, Malaysia. To make up for being half-a-century late Singapore decided to have two casinos. Other Asian countries - Vietnam, Korea, Sri Lanka, Cambodia and Japan - are joining the bandwagon to intensify the fight for gamblers patronage. Like good foodies, gamblers will also travel the extra mile for a wager.
Macquarie, a leading financial services provider in Australia, "think the Singapore gaming market cannot grow." They noted that the gross gaming revenue (GGR) for the nation had plateau around $6 billion a year since 2011. "After three big years, tourist arrivals in Singapore have started to decline (down 3 percent year-to-July) and most importantly, Chinese visitors who form more than 50 percent of Singapore VIP volume have fallen by 29 percent year-to-date," Macquarie said. VIP volumes make up around 80 percent of the city-state's total gaming volume, it said [CNBC 23 Sep 2014].
A year ago, I posted Can the Bluff be Called?, which spoke about the beginning of a rising equity market. The focus was the markets on steroids, a steroid called easy money administered by a doctor called Mario Draghi and other central bankers around the world. In his Bumblebee address, he vowed to do "whatever it takes" to salvage the European economy and keep the Euro together. As I pointed out then, there were a select group of men and women at the top central banks in the world, who were willing to use nuclear power to avert an impending armageddon. A couple of years on from the Bumblebee address, we have seen record rises in equity markets around the world, as hot money chased the highest returns. Emerging markets (EM) were both embattled and supported in equal measure. That is the nature of hot money. However, two years on, economic activity has shown little signs of sustained improvements and Germany - the bellwether, the flagbearer of Europe, the EU and the Euro is one quarter away from a recession. Mr. Abe's third of the three arrows in Japan hasn't yet left his bow. But at least the EMs and the US seem to be doing better. But how has it come to this? With the central banks having pumped more money into the system than ever before, why hasn't it translated into an improving economy? Why have more and more people stopped looking for a job? And why do the Western baby boomers now have to hope that the EM young savers bail them out?
The fight to save the Euro
Back in 2012, Mario Draghi tried saving the Euro the only way he could - by bringing down the spreads between the German Bunds and the bonds of the Southern profligates. He had to enable the profligates to continue to borrow. He had to make a big bang announcement and he knew that he had to keep the money managers around the world onside. He came out and announced, what amounted to, infinite liquidity and eventually, what amounted to, a bond buying spree. A risk on year, morphed into a risk off second half. However, there wasn't a commensurate increase in business sentiment. France continued to struggle with structural reforms - they couldn't sort out housing or taxation. Italy didn't come up with structural reforms either. These countries threw away a lifeline that Draghi threw their way. Without labour reforms or manufacturing returning to these shores, there is no way France or Italy can work their way out of this. And yet, in fractured parliaments reforms are the hardest things to pass.
No one can call the end of a debt super-cycle with any degree of precision. Can the Bluff be Called spoke about the hedge fund manager Deepak Narula, who was 3 years too early with his bet on the sub-prime - the bet that came to be called as the big short. With the markets flushed with liquidity as the European Central Bank borrows more and more, it is near impossible to pinpoint when this bubble will burst, but changes in the perceptions of various market participants are a good lead indicator. You now hear a lot more money managers and senior economists starting to worry about the EU, as now it is France and Italy on the line, not Greece and Spain.
Germany could never commit the political suicide of throwing the profligates a lifeline, yet the EU is its' largest trading partner. Such dichotomies are rife on this continent and we are no closer to solving it that before the Bumblebee.