Tuesday, June 16, 2015
Here's a snapshot of the statement. My fees are now 0.06% and 0.07% for two index products. Now that is what I call cheap!
It got me wondering, how much would the NC Pension Fund pay at these rates?
Assuming that the NC Pension Fund is about $90 Billion in assets, a 0.07% expense ratio would be about $63 million in fees.
Which raises the question: Why does the NC Pension Fund pay $500 million in fees? It appears that the fund is overpaying by about $437 Million annually.
Sunday, June 14, 2015
Second, the Treasurer seems to be pursuing a "pick winners" strategy. This is a fool's errand. You can't reliably pick winners in today's financial markets. All you will end up doing is paying high fees to so-called "experts" and getting average performance in exchange. A mountain of evidence shows this to be true.
What is worse is that the pension fund continues to move into Private Equity and Hedge Funds - both of which are incredibly expensive and do not provide the return for the risk and costs. As Andy correctly points out, the risk of these assets is understated because they don't trade daily in the markets.
I've been making these arguments for a few years now and during that time the fees paid by the pension fund have gone up from about $300 million/year to about $500 million/year.
This isn't small change. The state of North Carolina pays half a billion dollars a year to Wall Street firms who provide worse performance than if the State just indexed the money. At some point you have to question whether the Treasurer actually understands basic finance.
Thursday, June 11, 2015
A little shameless self promotion. Srini Krishnamurthy and myself are honored to take over as editors of the Financial Review.
The full details are over on the Poole College of Management site
The Financial Review website is here: financialreview.poole.ncsu.edu
Thursday, June 4, 2015
I've blogged about target date funds before, and how they are like hotdogs, but not in a good way.
Wednesday, May 13, 2015
That's out of more than 7,000 mutual funds.
Remind me again why anyone uses active management?
Wednesday, April 29, 2015
It is pretty common for "great quarter" stocks to tank shortly thereafter.
The fact that the analysts are so cosy with the CEOs of the companies that they cover says it all. As I used to say to my students in my equity analysis course - you don't work for the company and you don't owe the company anything. Your analysis must be at arms length, otherwise you risk suffering from Stockholm syndrome.
Thursday, April 23, 2015
Wednesday, April 22, 2015
Just so we are clear here, that's $500,000,000.
So what are we getting for all these fees? Apparently not a whole lot of extra performance - which is no surprise to anyone who believes that markets are pretty efficient (they are).
Silton points out that otherwise the fund is in good health - which is good, but that doesn't make wasting hundreds of millions of dollars a year any less bad.
The question we should ask then is "how much should these fees be?"
I'd answer that for such a huge portfolio, 0.1% of assets is a good start, as I can pay only 0.18% for $3000 with Vanguard and it seems reasonable to assume that $90 billion would get some sort of discount.
So assuming $90 billion in the fund, 0.1% fee would yield $90 million in fees. But even if you go with the Vanguard fee of 0.18%, we're still only looking at $162 million. That's $338 million less that what we are paying.
Wednesday, March 11, 2015
Monday, March 9, 2015
To answer this question, we need a quick recap of options and splits.
Forthcoming: Journal of Accounting and Economics.
A copy is available for download on my website.