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An index fund outperforms a hedge fund. This is a truism that has been upheld many times. Certainly there are some managed funds that outperform an index for limited amounts of time, but in general and on average you're better off putting your money in a simple index fund and leaving it there. The problem
is, this isn't exciting enough for some people. Some people prefer to pay large fees to hedge fund managers who make almost enough through careful analysis to pay their own salaries. Then they stare at glowing rectangles with lines on them like a magpie on a coin counter.
The front end of this hedge fund would look much like any other. It would advertise the expertise and diligence of its managers, publish a list of stocks that were invested in based on short to medium term growth potential, and always advise that larger returns come with larger risks. But on the back end the managers would be a small set of middle aged interns paid relatively low salaries to pretend to be experts. These managers would have the responsibility of publishing predictions and making stocks look exciting. On the back end this hedge fund would record theoretical large salaries and transaction fees but not actually pay them. It would buy and hold a plain old market index, and thereby outperform most other hedge funds by a significant margin. The payouts would reflect this higher performance while holding back enough to pay for the facade
If anyone wants to take their stocks and go home the fund could simply buy the promised stocks at spot and still come out ahead. The excitement you want with the security you need. How many shares should I put you down for?
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||Strange to say, but keeping the wrong records, even if you're making more money, is still considered a kind of fraud.
||Yes, scrap the lying about salaries and fees and this is a great idea. Basically all marketing. But then that is how marketing usually works. Product: petroleum jelly with a few cheap synthetic fragrances. marketing: Exclusive limited edition Youthful Skin serum as used by top film stars and celebrities, Guaranteed to make you look 10 years younger. Only £150 per 2ml vial.
||Lie to people for their own benefit? It might work. But, an
all-hedgehog fund might raise fewer ethics questions.
||Maybe, a hidden computer algorithm, to get around the lying. Call it something trendy like Quantum stock investment. All the programmers used only had abstracted parts so each never saw the algorithm function as a whole. The whole of course sums to a backend that is just an indexed fund.