Millenium's Izzy Englander Speaks Out Against Tyranny Of Management Fees


Izzy Englander's hedge fund, Millennium Management, does not charge management fees, for the same reason that it does not engage in the sex trafficking of minors or run a white slavery ring on the side: to do so (charge investors fees or force people to work for him against their own will) would be sick, twisted and wrong and, according to Izz, anyone who does should be ashamed of him or herself.

In a rare public appearance, he said: “In the old days the management fee was not commonplace. The business was ultimately run for the bottom line P&L. Investors shared in the business cost rather than an arbitrary pre-established management fee.” Englander added that the origin of the hedge fund industry – as entrepreneurial and opportunistic partnerships between managers and investors – is often forgotten and confused. Instead the term "hedge fund" has become defined by the “two and 20” group, referring to the 2% management fee and 20% performance fee that hedge funds typically charge.

“The real problem with the two and 20 structure was that the manager’s incentives changed,” according to Englander. By charging a fixed percentage of assets as a management fee, managers became encouraged to grow their businesses and as a result moved into areas that diversify into other areas beyond the ones they knew.

Englander said: “Name me another industry in the world that has a management fee like this. If a manager has skin in the game, why would he create larger costs that are unnecessary.”

Yada, yada, yada, anyone who charges a management fee has some serious explaining to do. But just one question if we might! Is Englander under the impression that hedge fund clients are being forced to invest against their own will? That managers are driving around town in unmarked vans, wearing ski masks and luring people inside, then drugging them and forcing them to tie up their money and it's only when they come to that they're informed "by the by, we didn't mention this but there will be a 2 percent management fee?"

Millennium’s Englander talks tough on fees [eFinancial via BI]