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Why "Skin In The Game" Is A Must-have For Investors
“Skin in the game” in this context is the fact that your asset manager invests alongside you in the funds it promotes, taking an equity risk similar to the risk its investors are taking by investing in his fund. Today we’d like to discuss why investors should systematically seek to understand the level of "skin in the game” of an asset manager in a fund they are considering to invest into.
Why is “Skin in the game” critical?
Nassim Nicholas Taleb touched upon the well-known agency problem that can plague relationship with advisors or asset managers:
Never ask anyone for their opinion, forecast, or recommendation. Just ask them what they have – or don’t have – in their portfolio... I find it profoundly unethical to talk without doing, without exposure to harm, without having one’s skin in the game, without having something at risk. You express your opinion; it can hurt others (who rely on it), yet you incur no liability. Is this fair?
Check the entire article here.