Are you overpaying for performance?

I would just like to make a comparison between the fee structure of a typical buffet investment partnership vs a typical mutual fund fee structure. Here is how it goes:

Buffet Partnership fees:

1) There is no management fees.

2) Performance fees are only charged if the return is greater than 6% per year.

3) 25% of excess over 6% is charged as performance fees.


Example:
Gross return : 10%
Performance fees = 0.25 x (10% - 6%) = 1%
After fees return = 9%

Mutual fund fees structure:

1) 2% management fees regardless of whether return was positive or negative for the year.

2) 20% cut of profits after 2% deduction


Example:
Gross return : 10%
After fees return = (10% - 2%) x 80% = 6.4%

As you can see from the above examples, with the same gross return, one would have gotten 9% after fees in the buffet partnership while one would have gotten 6.4% in a mutual fund. This reveals the fairness through which buffet operated his partnership. Besides it is also known that 80% of all fund managers underperform their benchmark indexes. Hence, are you overpaying for performance? Just something to think about folks.


Better and better,
Lucas