If many would agree that "trickle down" doesn't work what is the justification for the Trump tax cuts?
Everybody doesn’t agree. Economics is divided by “supply-siders” who believe that trickle down works and “progressives” who think that the Reagan Supply-Side experiment has been a miserable failure. There is a disconnect between the two groups on whether “efficiency theory” economic models or historic gdp growth evidence should be taken as a better indication of which viewpoint is better. Add to that, many universities have economic endowments that they receive in return for emphasizing the supply side approaches that make the University Donors wealthy. The news also likes to include guests who take this supply side approach with surprising frequency as well, and many of these people don’t even have the economic models.I am part of the progressive group that would say that “reliance on trickle-down” doesn’t work, but leakage from capital dollar savings into consumer spending via inflation of assets owned by the middle class can be one of the most powerful forces in economics. IMO, this is pretty much the exclusive reason we didn’t go into Great Depression II in 1989 during our downturn after Reagan stacked the odds in favor of capital accumulation.Ultimately we all live in the world that we want to live in instead of the world we that is actually there. Self honesty is one of the rarest traits in our species simply because in most cases the benefit of being optimistic outweighs the benefit of being factually accurate. Until we can settle our arguments outside of this inherent bias, or until the next New Deal looks as much like the optimistic approach as it did in 1933 we will always disagree.
Are there any hedge funds with a 0% management fee, 6% hurdle rate and 20% performance fee?
If memory serves, Warren Buffett used to charge a performance fee above a hurdle. No management fees. It probably worked for him because his personal assets or residual cash flows were more than sufficient to cover the operating costs of his management company. If you are in the same position, have at it. If you are just starting out, and not in Warren's position, a management fee is hard to avoid. Even if we assume that your investment business is run in the leanest possible way (i.e. you fulfill the roles of lead portfolio manager, risk manager, analyst, and business development guy, and you work out of your house), you will generally get nickel and dimed on everything. It adds up. You will need:- Legal counsel: A decent chunk of change to set up your structure, as well as an annual reserve for contingencies. For a small fund, $10-20K to set up, $5K for annual upkeep/reserve. If you participate in complex OTC/private/structured trades, this cost item becomes much more significant.- Audit: You will most likely have to register as an exempt investment adviser with the SEC, which in some states requires that you perform an annual audit for your fund. For a small fund with active trading and different types of assets in it, could be $10-20K annually.- Tax: You aren't doing your own tax work and sending out your own K-1's.- Administration: You will need to hire a fund administrator to do your fund accounting, manage position valuations, keep up your capital accounts, do periodic investor reporting, handle the annual close and audit (see above), handle treasury, etc. $30K or way more annually for a modest sized fund, easily. - Compliance: Perhaps your administrator can handle this as well, but nothing is free.- Fees and filings: Little fees, paid everywhere. State franchise boards, SEC fees, Blue Sky fees, etc., etc.- Front office goodies: Would you like a Bloomberg terminal? A slick trading platform? Third party research? - You: As you get your fund up and running, you may be interested in eating, paying rent, and sometimes getting together with a friend or client over a meal. There are things I'm forgetting, but that's the gist of it. You can economize on certain items by handling some of the workload yourself, but this will ultimately make you unhappy, because it will be exhausting and will take your mind away from investing, and it will be unfair to your investors, as you are not applying your full capacity toward managing their money.
How do small hedge funds raise fund?
Portfolio Managers without industry connections often start with <$10m of friends and family money and struggle to ever get to the $100m point of critical mass and therefore the majority of these hedge funds close their doors within five years. Hedge funds with <$100m in assets under management (AUM) can only really attract high net worth investors (HNWI), family offices and a few adventurous fund of hedge funds and they must attract as many of them as possible in the first few years to reach that point of critical mass before their business fails. When their fund AUM passes $100m, they will have a better chance of survival as they will be able to attract assets from larger institutional investors such as private banks, wealth managers, pension funds, foundations and endowments.Newly launched hedge funds can hire an experienced and well connected Investor Relations person. Also, the Prime Brokerage where the newly launched hedge fund executes its trades is incentivised to help its hedge fund clients grow by making introductions to investors. This is because as the hedge fund grows in size, it will pay the Prime Brokerage more trading commissions. Another way of raising assets is using Third Party Marketers who hold multiple pre-existing relationships with early stage investors and are therefore able to introduce hedge funds to the RIGHT investors with a RECOMMENDATION. These two key benefits of their service are crucial as they prevent wasted time spent trying to attract the wrong investors who will never invest as well as increase the chances of an investment due to the influence of a third party endorsement. Reputation and research are critical components of successful Third Party Marketers.I still allocate 5% of my portfolio to large and small hedge funds and the Third Party Marketers I consult to find the best new hedge fund managers are the following:Caradon Capital IntroductionsDWC - DEVONSHIRE WARWICK CAPITAL LLP