Transcripts

"Commentary"-Finding The Right Fund & Manager

SUSIE GHARIB: In tonight's commentary, picking the right type of investment fund and the right type of money manager. Here's Allan Sloan, senior editor at large for "Fortune."

ALLAN SLOAN, SR. EDITOR AT LARGE, FORTUNE: We tend to talk about hedge funds and buyout funds and venture capital funds as if they're all similar. But they're not. The range of returns of funds in the same category is huge, which means that, while some of the fund managers are worth the enormous fees they charge, many of them aren't. Consider these amazing numbers from Cambridge Associates, a Boston firm that has tracked individual fund performances for years. You can get average returns in lots of places, but Cambridge's numbers go way beyond that. For example, more than half the 493 venture capital funds in Cambridge's database lost money over the last 10 years. That's right, they lost money -- after fees and expenses, of course. Even a S&P index fund did better than that. The average VC fund return was about 1.7 percent a year, probably less than the manager's fees. But you did really well if you picked the right manager. The top 5 percent of the funds earned more than 27 percent a year. The bottom 5 percent lost more than 22 percent a year, so there's a 50 percent a year difference from top to bottom. There were similar swings between the top and bottom in real estate funds and buyout funds. The point of all these numbers? To show that to make money, you need to pick the right manager, not just the right asset class. As always, people matter-- a lot. I'm Allan Sloan.