Week 7 - Funds are fun!

Week of March 5th, 2009

It's Pension Funds vs. Hedge Funds in Utah

When the economy was going good, fund managers took it upon themselves to charge high fees for the service. Utah Retirement System's Larry Powell is trying to have them spread these fees out over several years. It used to be the case that the fund named the fees, and the people paid it. Now they are realizing that they are going to have to negotiate. One interesting thing to consider is that these fee changes will only apply to the new funds. How will that affect how people like Larry Powell determine which funds are the better investment. He expects that the top performers will still have the advantage of dictating fees, but the new ones will definitely have to build customer relationships through negotiation.

This applies to our class discussion, because changing when and how fees are paid changes the value of a fund. $10,000 today is worth a lot more than $10,000 spread evenly over three years. It would be interesting to see if they factor in the time value of money into those fees. Which, essentially would not create any real savings for investors, but would make it easier to manages their cash flows. In my current situation, paying the fees off over time would be much more appealing, because I don't have the cash. However, if I did have the cash now, would I want to still pay fees right away when I could invest that extra cash and maybe make some returns greater than what I'd be paying. It's an interesting thought to consider.

http://online.wsj.com/article/SB123629796624746265.html