Don't Let Your Fund Managers Manage You

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When we started TheStreet.com, one of our missions was to try to get equal treatment for the wealthy and the not-so-wealthy. If there were demands the rich had that were substantive (not dog-walking) involving disclosure or style or rights, we wanted them expanded to those not in the top 1% of Americans. Marty Peretz and I, the co-founders, were keenly aware of the disparities in the financial business and we have been bent on changing them.

Our perspective comes from my work at Goldman Sachs and Cramer Berkowitz and Marty's role as an investor in many different types of sophisticated hedge funds. We have seen this world, and we know what wealthy people can and do expect and deserve, and we think everybody deserves it, too. Whenever we see mass money handled in a different way, we like to point it out, because it is wrong and inequitable.

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Nowhere is the inequality so great as in the role of the manager of your money. For wealthy people, the manager is the key. But for those who are not wealthy enough to be in hedge funds -- standard minimum is now $5 million in liquid assets as an entry barrier -- mutual funds have grown as the asset style of choice. And the mutual funds have perpetuated the notion that what matters is the fund family, not the manager.

This distinction doesn't cut it any more. If a hedge fund were to change managers, people would be notified of the change swiftly and be given all sorts of data about the new manager. Most wealthy people would leave. (Most of the previous decade I have worked with my partner, Jeff Berkowitz, so the transition would be easy. But if the money were simply going to be given to a new outside manager, I can imagine that most people would pull all of their money. They don't know the new manager.)

In the mutual fund business, however, managers change all of the time. But funds are marketed by name, not manager, because the mutual funds don't recognize this manager distinction. Of course, in the world of the rich, this would be ridiculous. You could never get away with this. I can't imagine Jeff and I leaving Cramer Berkowitz and our investors not getting any real notice about the shift. For some totally bogus reason, track records in the mutual fund industry belong to the name of the fund, but track records in the hedge fund industry belong to the manager!

You tell me which one makes the most sense?

Right now $37 billion in mutual fund money is being transferred from George Vanderheiden at Fidelity to several different managers. If you have money with these funds, do you know how these new managers have done? Did you get a bulletin about the change? Did you just read it in the paper? Have you asked for their track records? Do you know whether you like the type of stocks they buy -- are they very different from the previous manager? Or because your fund is called Destiny, is it manifest that you stay with it?

In hedge funds, however, changing managers is everything. In mutual funds, the only time the manager doesn't matter is with an index fund (don't forget that Jack Bogle, the father of the index fund, is on our show this weekend.)

Don't accept the current lack of information about changes. Demand them. Get them. Everybody, rich or poor, deserves the same amount of information about money, because, after all, it is your money.