Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: GuyNixon who wrote (83388)	8/30/2000 11:04:37 AM
From: Knighty Tin	Respond to of 132070

Guy, My info may be dated, as the last time I managed a hedge fund was in 1984. But, at that time, hedge funds paid zero upfront to brokers and no trailer. But they did agree to do a certain amount of mostly full commission business with the introducing broker, and that was much better than the fees they could get from registered advisors and mutual funds. For example, if a broker brought $5 million into the hedge fund, he might get $200,000-500,000 in gross commissions the first year. And these are big payout commissions. By big payouts, I refer to institutional commission cutting. When I was running a mutual fund, we did size by size on every trade, and we paid very low commissions per dollar traded, which is par for the course. We did a huge number of trades, as that is my style in income accounts and the brokers were falling all over themselves to get the business, despite the fact that the % payout was minimal. During my last full year of management, I paid out $27 million in commish. However, those % rates were of no use to brokers with high net worth clients. Since I expected brokerage traders to take risk on my trades to get me the best price, the trading desk took the lion's share of the commish for their own P&L statement. Of course, the bosses ALWAYS get their share for sitting in their leather trimmed offices and deciding which attractive female junior trader can be had that day for a promised promotion. <g> So, that left very little for an introducing broker. Since we were a load fund, those guys got the front end and a .25% trailer, but that usually worked out to much less than 1% on a major chunk of money. With hedge funds, the commissions are paid to the introducing broker and they are not largely discounted. This can bring huge bucks into some retail flogger's account. I had a problem with this system for several reasons: 1. Full or close to full commissions hurt my performance. 2. There are brokerage firms with trading expertise and those without, and the guys who had access to the big piles of money were usually at the firms without (for obvious reasons. A small firm will give a retail broker with large accounts a much greater % payout than will a Goldman Sachs or Morgan Stanley). 3. The trading desks were not being paid to put their heads under the blade for my account, so, duh, they didn't do it. These guys aren't that dumb. 4. The home office ALWAYS tried to screw the introducing broker out of his fair share somewhere down the line, and I had to get involved in those fights, which I didn't appreciate. When the firm itself didn't try to screw its own employees, many hedge funds would try to "nationalize" the accounts and edge out the introducing broker. I would never play that game, for moral as well as practical reasons (the introducing broker had access for a reason. Never tell a rich guy you are going to rip off his nephew in law and force the kid to come begging him for a job. <g>) It is tough to wrangle big account money out of those smart brokers, due to reason #4.

To: GuyNixon who wrote (83388)	8/30/2000 11:08:35 AM
From: Knighty Tin	Respond to of 132070

Guy, My info may be dated, as the last time I managed a hedge fund was in 1984. But, at that time, hedge funds paid zero upfront to brokers and no trailer. But they did agree to do a certain amount of mostly full commission business with the introducing broker, and that was much better than the fees they could get from registered advisors and mutual funds. For example, if a broker brought $5 million into the hedge fund, he might get $200,000-500,000 in gross commissions the first year. And these are big payout commissions. By big payouts, I refer to institutional commission cutting. When I was running a mutual fund, we did size by size on every trade, and we paid very low commissions per dollar traded, which is par for the course. We did a huge number of trades, as that is my style in income accounts and the brokers were falling all over themselves to get the business, despite the fact that the % payout was minimal. During my last full year of management, I paid out $27 million in commish. However, those % rates were of no use to brokers with high net worth clients. Since I expected brokerage traders to take risk on my trades to get me the best price, the trading desk took the lion's share of the commish for their own P&L statement. Of course, the bosses ALWAYS get their share for sitting in their leather trimmed offices and deciding which attractive female junior trader can be had that day for a promised promotion. <g> So, that left very little for an introducing broker. Since we were a load fund, those guys got the front end and a .25% trailer, but that usually worked out to much less than 1% on a major chunk of money. With hedge funds, the commissions are paid to the introducing broker and they are not largely discounted. This can bring huge bucks into some retail flogger's account. Also, there is no immediate reduction of the client's horde of money, which has good PR overtones. I had a problem with this system for several reasons: 1. Full or close to full commissions hurt my performance. 2. There are brokerage firms with trading expertise and those without, and the guys who had access to the big piles of money were usually at the firms without (for obvious reasons. A small firm will give a retail broker with large accounts a much greater % payout than will a Goldman Sachs or Morgan Stanley). 3. The trading desks were not being paid to put their heads under the blade for my account, so, duh, they didn't do it. These guys aren't that dumb. 4. The home office ALWAYS tried to screw the introducing broker out of his fair share somewhere down the line, and I had to get involved in those fights, which I didn't appreciate. When the firm itself didn't try to screw its own employees, many hedge funds would try to "nationalize" the accounts and edge out the introducing broker. I would never play that game, for moral as well as practical reasons (the introducing broker had access for a reason. Never tell a rich guy you are going to rip off his nephew in law and force the kid to come begging him for a job. <g>) It is tough to wrangle big account money out of those smart brokers, due to reason #4.