The World's Most Honest Money Manager Tells All

10. OK, let's save one question to actually discuss the fund you manage. Would you explain the investment philosophy behind Quaker Small-Cap Value and how you've managed to succeed?

Quaker Small-Cap Value is what I would call an eclectic value fund. We are supersonically diversified and sector-neutral to the small-cap market.

Our fee structure is also unique: We are paid a fee based on our actual outperformance. Performance-based fees are a very unpopular form of compensation. To the credit of Fidelity Magellan and Vanguard Windsor funds, they base fees on performance as well. But the vast majority of funds aren't willing to do it.

Out performance-based fees operate in a symmetrical fashion above and below the standard fee. So, our Quaker fee ranges from 30 basis points to 150 basis points, a symmetrical swing of 60 basis points around what the SEC calls a fulcrum rate (our fixed standard fee of 90 basis points. We are now being paid the maximum because we've outperformed our benchmark handily. If we underperformed, our fee drops to 30 basis points.

One other note: All the partners at Aronson are invested in Quaker, so when the fund wins, we win.