Hedge Fund Fees

Posted on April 24, 2021 by Florian Buschek

Here is the Q1 2021 Arquitos letter. I like the manager Steven Kiel a lot so this post is not to single him out but just to illustrate a point. What follows is the performance table since inception.

The fund has clearly done very well, beating the S&P by 2.9% annualized, albeit with plenty volatility along the way. But here is what I am getting at: comparing gross and net makes an annualized difference of 5.3% or cumulatively 208.8%. That is almost as much as the S&P itself has achieved! I am not sure about the fee structure but doing some crude math, it seems the flat fee is around 0.8-1.0% and the performance part 20%. Those seem very reasonable, clearly less than the old “2 and 20”. Yet it makes such a huge difference over 8 years. Of course there were fund in and out flows along the way so it certainly cannot be said that Kiel and team pocketed twice the original fund, just like not many investors will have enjoyed the long term performance due to timing.

But it goes to show the power of compounding once again and it also highlights how friendly Warren Buffett’s holding is. He practically works for free for his shareholders (although I am hearing that his lieutenants are not so modest).

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