This post covers a theme I’ve discussed on many occasions over the past several years, namely how “alternative asset managers” are making enormous sums of money by ripping off public pensions as well as college endowments. Send this to anyone who naively tells you we live in a meritocracy. The sad truth of the matter, is we operate within an economy which incentivizes all of the worst types of behavior, where people can earn millions of dollars a year while failing.
Don’t believe me? Read the following excerpts from a recently published piece in The Chronicle of Higher Education, How Colleges Lost Billions to Hedge Funds in 2016:
A peculiar thing happened in 2016. While the Dow Jones industrial average grew by more than 13 percent, college endowments saw nearly a negative 2 percent rate of return. The worst endowment performance took place at the nation’s wealthiest private institutions. Harvard’s endowment alone shrank by $2 billion, a 5-percent decline. Out of the 40 biggest endowments, 35 declined in value.
What’s going on here?
A key factor is poor performance by the hedge-fund gurus that institutions have increasingly paid to manage their investment portfolios. Colleges have reason to be angry because hedge funds charge high fees even when they lose money. Colleges and universities spent an estimated $2.5 billion on fees for hedge funds in 2015 alone. They paid an estimated 60 cents to hedge funds for every dollar in investment returns between 2009 and 2015, according to a report by the Strong Economy for All Coalition. These fees helped each of the top five U.S. hedge-fund managers earn more than $1 billion in 2015 despite mixed performance.
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Most Liberty Blitzkrieg readers will be familiar with the common fee structure for hedge funds known as “2 and 20.” What this simply refers to is the fact that a manager will take as a fee 2% of the assets under management, as well as 20% of the profits (above a 
One of the most important revelations to emerge in 2014 to-date, is the fact that public pensions are taking on an increasing amount of irresponsible risk in order to meet return targets. The primary way they are doing this is by investing a larger and larger percentage of assets with “alternative investment” managers such as hedge funds and private equity firms.