The Main Street dream of being your own boss, of trading for a living is exploited to the max by system vendors and trader education providers. Come to think of it, isn’t that’s how outfitters and map sellers made fortunes from those heading to the California Gold Rush?
I’ve always stated that it’s important to have a diversified source of income. The brokerage firm provides back office services and collects fees for corporate finance activities. Hedge funds become banks. Traders are paid salaries from administrative fees paid by clients and that’s why funds are now holding them hostage:
Hedge Funds Hold Investors ‘Hostage’ After Rebound
The founder of New York-based ARIS Capital Management LLC, which has about $250 million invested in hedge funds, is still waiting to get back $155 million from 22 managers that restricted withdrawals in 2008.
“We don’t object to the illiquidity,” Papastavrou said in an interview. “We object to how some managers are abusing the situation and holding investors’ money hostage to generate fees.”
About $77 billion in hedge fund assets that were frozen during the credit crisis are still restricted, according to estimates by Credit Suisse Tremont Index LLC, even after the biggest stock-market rebound since the 1930s and a record rally in credit markets revived demand for some assets considered illiquid a year ago. D.E. Shaw & Co., Highland Capital Management LP and Harbinger Capital Partners LLC are among firms that have yet to return money to clients.
Who cares about bad PR when two percent of $77 billion means $1.54 billion in administrative fees for 2010. No one in the business counts on trading profits to pay the monthly bills. Don’t ever forget that.