[barumrho]

Shouldn't this problem self-regulate, though? Ultimately, investors mainly care about the returns and if you can get better returns elsewhere due to these fees, they will switch.

If they can charge large amount of fees and still stay competitive, then good on them, right?

[jfengel]

There's a lot of friction. You won't switch based on one year, which would just leave you chasing last year's lucky winner (who will likely revert to the median next year). It takes a long time to realize that your hedge fund is a loser.

The whole point of a hedge fund is for you to let someone else do the worrying. So the market is decidedly inefficient.

[chii]

> It takes a long time to realize that your hedge fund is a loser.

it's been many decades since the existence of statistical analysis of hedge funds (as an aggregate) that demonstrates their lack of edge over benchmark passive index funds.

Some hedge funds would still out-perform. Most don't, and those who do tend to charge fees up to their level of edge, and leave only index-benchmark returns for their investors.

If you don't heed this evidence now, you deserve to lose money to these funds.

[comboy]

It's kind of like buying lottery tickets from a vendor and when you win, but he steals the winnings, you switch to another one.

Except, also, you don't actually ever see the tickets.

[k-i-r-t-h-i]

> Ultimately, investors mainly care about the returns

Not quite. It also matters how and when returns are generated. Some vol funds make 1–3% a year on average, but they still manage billions because when markets crash, they (presumably) crush it — and that’s when investors need them the most

[bushbaba]

Depends on if there’s capital gains tax when leaving the firm.

[financetechbro]

Perhaps. But HF capital is usually locked down for a few years. So there is some friction to switching

[ptero]

True, but I believe (although last explored this question a long time ago) that the majority of the capital is not locked.