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Cash is (flun)king Add to ...

Barry Ritholtz, who writes The Big Picture blog, tells an interesting story about how conflicted money managers can be. He mentions two managers who, in an extremely prescient move, put the vast majority of their clients' investments into cash at the start of 2008, thus sheltering them from the devastating stock market losses that ensued (the S&P 500 has been cut in half since then).

The clients were overjoyed. However, the money managers made less money on the accounts because money market funds pay them nothing - so they lose out on the bearish, but smart, move. Their annual compensation is cut drastically.

But it gets worse: Their unnamed firm gets upset by the drop in their revenue and puts them into the so-called penalty box, docking their pay even further.

"We've previously discussed the misaligned compensation system of bankers and the short-term incentives that led to the entire credit crisis," Mr. Ritholtz said. "But did you have any idea that the entire industry was so utterly conflicted?"

You can read the full story here. If you have any insights or stories regarding compensation for Canadian money managers, we'd love to hear them in the comments section.


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