In our day job, we have a Fiduciary relationship with our clients. A Fiduciary has a legal obligation where all actions are performed for the benefit of the client. It is a much higher duty of care than the typical “Suitability” standard, which essentially says you cannot sell Facebook IPO shares to Grandma. We sit on the same side of the table as our investors, as opposed to adversaries looking to “monetize” clients.

So you can imagine our amusement when the prospectus for this fund made its way to our attention yesterday:

Goldman Sachs Multi-Manager Alternatives Fund (GMAMX)

It is a mutual fund of hedge funds, with all the layers of fees costs and taxes you might imagine.

According to a prospectus, the fund gives investors “exposure to common trading strategies of hedge funds including:

kermit Long-short-equity

GonzoEvent driven investments

fozzieRelative value trading

miss piggyOpportunistic credit trading.

The managers of the fund have already selected a number of hedge funds — Ares Capital Management, Brigade Capital Management, GAM International Management, Karsch Capital Management and Lateef Investment Management as the initial run of hedgie managers.

No surprise here: All of the “Costs to execute those strategies will be borne by the fund’s investors.” These costs include management fees, plus the use of leverage, derivatives and (up to 15%) illiquid investments. (Sounds awesome).

Annual fees for the fund may reach as high at 3.3% for some classes of shares — not counting the A shares, which start off with a 5.5% upfront fee.
GMAMX Fees
Source: Fund Pospectus

 

You only need $1,000 to get into this Goldman fund (Yay!). Why you would want to is another question entirely. In addition to the enormous drag high fees impose, there is the performance issue. As TheStreet.com noted, “According to the HFRX Global Hedge Fund Index, hedge funds returned just 3.5% in 2012, significantly underperforming a 16% gain posted by the S&P 500 Index. Over five years, the hedge fund index has lost about 13.6%, while the S&P gained 8.6%, as of year-end 2012.”

As Fiduciaries, we are always seeking ways to reduce cost and risk for clients’ without compromising performance. That means making sure that muppet investments like this will not be finding its way into any of our portfolios . . .

~~~

Prospectus, Factsheet, and more details on etc, can be found at GSAM

 

Category: Hedge Funds, Investing, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

12 Responses to “GMAMX: Goldman Sach’s Muppet Fund of Funds”

  1. Jack Doyle says:

    “…as opposed to adversaries looking to “monetize” clients.”

    I wish I had thought up your term for the army of people in the fund industry who have made it their career choice to find imaginative ways to separate their “clients” from their money. I have worked for many years as a consulting analyst, hired both by wealth managers and members of the fund industry, to pass judgement on the investment merits of mutual funds and their portfolio managers. My findings are that there are a handful of managers capable of producing risk-adjusted returns in excess of properly selected (fitted) performance benchmarks, but even these have their day and pass on. The vast majority of managers have little idea of what they are doing and are incapable of answering properly the simple question “How do you know if you are doing well?” They just don’t know.

    J

  2. Moss says:

    In general Buffet is correct about Hedge Funds being compensation schemes. The tax code also favors them thus they continue to live off other people money.

  3. Petey Wheatstraw says:

    Poot de labster in de pot . . .

  4. Orange14 says:

    Didn’t Bernie Madoff run something like this? His returns were spectacular, at least in the beginning. :-O

  5. Herman Frank says:

    “Commission Hunters” on safari, making a killing zapping anything moving and breathing. Yes, that living and breathing doe is YOU Dear Reader!

    Whether ML, MSSB, or The Golden Boys, they’re all vampires looking to draw the life-blood out of their clients so that they may live (happily!) …. till the next kill.

  6. Lugnut says:

    What a bunch of sociopaths.

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  10. ghosthunter says:

    If that were all, it would be really cheap! These are just the fees to get the hedge fund managers out of bed, but nothing more. Typically, on top of all this, the underlying hedge funds will charge a performance fee of 10 – 20% on any profit they earn above the high watermark.

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