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Institutional and individual investors rushed to give him their money, eagerly paying management fees of 2 percent plus 20 percent of any gains, and pushed his funds' assets earlier this year to $38 billion.
("We don't think we should be paying management fees," he says. "The VCs aren't doing any extra work").
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Such fund managers typically are paid management fees of 2percentt of assets under management, plus 20percentt of profits, but some also have customers agree to pick up office costs as well through soft-dollar arrangements.
Some portion of that $30 billion spread is entirely rational: Owners of closed-end shares are a captive audience, forced to pay management fees to a portfolio manager who may not be doing a good job.
In other cases, companies pay management fees or set up extra facilities at schools.
Investors in that new vehicle have been told they will not pay management fees.
In return, Canary deposited $25 million into Pimco funds and paid management fees, the S.E.C. said.
Should the highly paid management have known what was under the bonnet?
To help choose which ones, it hired Consulting Services Group of Memphis, which recommended that the city create a custom basket of hedge funds that paid management fees to Consulting Services Group.
She noted that Apple, Hewlett-Packard and Intel each has sought to stack its board of directors' compensation committee, which decides how to pay management, with independent directors.
Over the three fiscal years ending in March 2003, for example, investors in the Fidelity Magellan fund, which has not been implicated in any scandals, have paid management fees of $1.6 billion.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com