Heads up about fees tales

In “Correcting beliefs about hedge funds one fact at a time” (August 16), Jean Pierre Verster was trying to justify the supposed fairness of a hedge fund charging a 20% performance fee if the fund made a profit.

The following morality tale is the only response that makes sense:

A man walks into a bar and says to Verster: “Have I got a great opportunity for you! I’ve come across this guy who will take a bet from you on the toss of a coin. If it comes up heads he will give you R1m and if it’s tails you give him R1m. All you have to do is pay me 20% of your profit if you win. That’s my performance fee for tossing the coin. Naturally, if you lose I just walk away and only charge you a 1% management fee. Oh, did I mention that I charge a 1% management fee if you win? How fantastic an opportunity is that!”

Verster replies: “Get out of my sight, you thieving little crook. Just how stupid do you think I am?”

The man retorts: “Tell you what, gov. If you repeat the bet, I won’t charge you the 20% performance fee until you get your losses back. All I’ll expect is my 1% management fee, win or lose. How’s that ?”

Verster responds with a few unrepeatable expletives, but after cooling down a bit, thinks to himself: “Now, just a minute, this gives me an idea.”

Robin Ducret

Via e-mail