Eugene Fama reiterates opposition to active management, high fees

Live from the IMCA conference: 'Forget about hedge funds,' he says

Oct 7, 2013 @ 4:29 pm

By Jeff Benjamin

Eugene Fama, a man widely regarded as the father of modern finance, held firm Monday to his staunch opposition to active management and high fees while in some ways dumbing down the concept of asset management.

“Active management is a zero-sum game before cost, and the winners have to win at the expense of losers,” he told an audience of financial professionals at the Investment Management Consultants Association's Advanced Wealth Management Conference in Chicago.

Asked where he thinks alternative investments belong in a portfolio strategy Mr. Fama first emphasized his distaste for any strategy that self-reports performance, then elaborated by saying that he can't understand why hedge funds are attracting assets.

“I can't figure out why anyone invests in active management, so asking me about hedge funds is just an extreme version of the same question,” he told the audience.

Although many of his responses during the hour-long question-and-answer session drew laughs from the audience, Mr. Fama wasn't joking in his candid criticism of what he views as bad investment decisions.

“Since I think everything is appropriately priced, my advice would be to avoid high fees. So you can forget about hedge funds,” Mr. Fama said.

Part of believing that everything is appropriately priced means less emphasis on balancing global allocations.

“It doesn't matter that much,” Mr. Fama said of investing outside U.S. markets.

“If I were to take the U.S. market and combine it with all other markets, the effect on return would be minimal,” he said. “The U.S. market is so well-diversified already that combining it with global markets doesn't really matter.”

Mr. Fama dismissed market concerns about the beginning of tapering of the five-year quantitative-easing program as a non-issue that is getting way too much attention.

Citing the strategy of buying short-term debt in order to finance the purchase of long-term debt, he said, “I don't think the Fed[eral Reserve] has any role in how high rates are right now.”

“I don't understand why everyone is paying attention to this tapering,” Mr. Fama said.

“The Fed is using one kind of bond to buy another kind of bond,” he said. “What's the big deal, and why is anyone taking the Fed seriously?”


What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video


The #MeToo movement and the financial advice industry

Attendees at the Women to Watch luncheon commend the #MeToo movement for raising awareness about the issue of sexual harassment and bringing women together.

Latest news & opinion

Finra looks to streamline broker-dealer exams

CEO Robert Cook says three examination teams may be consolidated.

The 401(k) robo-revolution is here

Could human advisers be displaced as digital-advice firms use technology to deliver services to plan sponsors and participants?

SEC forging ahead on fiduciary rule despite DOL rule decision in 5th Circuit

Chairman Jay Clayton says 'the sooner the better' when asked when an SEC fiduciary rule will be ready.

What the next market downturn means for small RIAs

Firms that have enjoyed AUM growth because of the runup in stocks may find it hard to adjust to declining revenues if the market suffers a major correction.

DOL fiduciary rule likely to live on despite appeals court loss

Future developments will hinge on whether the Labor Department continues the fight to remake the regulation its own way.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print