Lunch with Warren — that's one way to spend your mgmt fees
The next time you hear that the “2 & 20” business is doomed, remember this story. According to our friends at Bloomberg, Toronto-based hedge fund Salida Capital won the annual “Lunch with Warren Buffett” charity auction. For the princely sum of US$1.68 million. Wow.
Salida runs about US$300 million according to the story. Assuming that Salida’s annual management fees approach industry norms, they earn about US$6 million each year in fees from their investor’s funds — money that is charged to cover rent, salaries, research services, travel and so forth.
Assuming that the US$1.68 million is being paid from that annual management fee, one has to ask themselves what exclusive market insight Salida expects to hear from Mr. Buffett to justify the tidy lunch tab. Plus the jet to get them to Omaha and back.
Those same management fees could be used to hire 10 or 15 researchers and fraud detection specialists to comb the books of dozens of companies looking for the next short– or a lunch with Warren. Even if the lunch is used to entertain Salida’s largest limited partners, some might wonder if the quantum of management fees are really needed if there is enough left over for this kind of expense.
I’m all for GPs donating to charities — that’s something we do each and every year. But US$1.68 million? It’ll just serve to confirm the suspicions of those institutional LPs who think funds have become too large, and the fees too rich.
MRM
That’s not the worst of it…the FP reported that at its peak, Salida managed about $1.2-billion in client assets, but now only manages about $300-million, with more than half the decline coming from the collapse of Lehman Brothers last fall, with which Salida was heavily invested…Apparently, it’s ok to make bad investment decisions, lose clients money and then blow $1.68 million on a lunch to gain “valuable information” (who knew?).
Hopefully Buffett can teach them something called ethics…