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Rekenthaler Report

Skin in the Game

Mutual funds pass the Taleb test.

Feel Their Pain
Nassim Taleb has a new hobbyhorse. Best known for publishing a book (The Black Swan) on the randomness of financial markets one year before the 2008 market crash (good timing that), Taleb is now tackling the subject of manager compensation. Taleb argues that manager compensation must be truly two-way, so that in addition to rewards for success, managers should face "damage" for failure.

The argument is very broad, involving managers of all types--investment, corporate, and political. (For hedge fund chiefs, intellectual ambitions tend to expand along with net worth.) For this column, we need only concern ourselves with fund managers. Should they face damage for failure? If so, do they?