The Worst Investment Management Compensation System Ever
I just read a shocking article in on the front page of today’s Money & Investing section in The Wall Street Journal: “Losing A Ton And Still Making A Killing”, Dennis Berman, February 16, C1 . A company by the name of Tetragon Financial Group is taking performance fees despite shares of its closed end fund being off 61% from its listing price in the spring of 2007.
The reason is that the high water mark resets every 180 days! So they are now above the high point of the previous 6 months (180 days) – even though they are way below the listing price. So they are taking performance fees on so called “profits”! $22 million for the 4th quarter and analysts are estimating they might take another $76 million in 2010.
Further, their positions, largely bank loans made to fund LBOs, are valued on a mark to model basis. That is, the firm itself values them based on its models, not market prices!
What a scandal! These guys should be ashamed of themselves for blatantly ripping off their investors.