Seattle Times – Critics of mutual funds have long maintained that one big problem with the entire investment genre is that the money manager gets paid even when the fund falls short of expectations.
But a brand new fund has put a twist on that proposition, creating a fee structure that actually could leave management getting absolutely nothing if it can’t deliver expected results. Known as a performance fee, seeing it done to the extreme should make investors wonder why it’s not more widely available.
To see why that is, let’s examine the new TFS Small Cap fund (ticker TFSSX), the second offering run by TFS Capital Management of Richmond, Va. TFS is best known for hedge funds.
In hedge funds, managers are used to making money only if shareholders profit, so it wasn’t a big stretch for Larry Eiben and his co-managers to bring that mentality to open-ended mutual funds.
With the new small-cap fund, management’s goal is not just to beat the Russell 2000 index, but to top it by 2.5 percentage points.
