CFA Magazine recently published an interview with Barton Biggs in its July-August 2006 Issue. Mr. Biggs has been with Morgan Stanley for 30 years acting as chief global strategist and is well respected by Wall Street. In 2003, He retired from Morgan Stanley to form Traxis Partners (hedge fund) with colleagues. In the interview, the following quote struck me the most...

"The hedge fund is another way for people to run money. It happens to be a way in which there are high fees charged. Eventually, the sheer size of the money going into hedge funds and the number of hedge funds that exist are going to inevitably result in a decline in hedge fund fees. In fact, my guess is that compensation across the investment management business is beginning a secular decline. It's the most overcompensated business in the world. Never have so many been paid so much for adding so little. It's an evolutionary process."

I am aware that competition forces fees in a downward trend and compensation will surely follow. But I still don't see the evidence of this happening at the moment based on the postings I see in jobs boards and the number of fresh grads wanting to go into the business (because it pays well).

I think it's all a matter of supply and demand. As more and more fund managers are needed, it becomes more difficult to get really good managers. The lack of supply raises the price for talents. The lack of supply also forces some funds to employ sub-standard managers (whether intentional or not) which results into Mr. Biggs observation of so little value added.

Some articles about Barton Biggs:
Morgan Stanley
Turtle Trader
Weeden & Co.

Tags: finance investing hedge funds CFA