CautiousInvestor

Want to Reform Wall St.? Bring Back Partnership Investment Banks

Like most of you, I like the author's thinking but since most of the broker dealers are already publicly held companies.......we must deal with the situation as it is.

First, limit leverage to something like 15 to 1. Commercial banks are limited to around 10:1, while some investment banks were over 30:1 last year.

Next, and where money management is involved, base compensation for the firm, whether a partnership or LLC, on a small percentage which would applied to the assets under management. These revenues would be used to pay typical overhead costs, including small base salaries.

Incentive compensation, though, would be some percentage of earned profits, typically around 20% in the hedge fund space. But, put in place high water marks which come into play when there have been losses and which require that investment managers recover prior losses before any incentive compensation is paid.

Thus, should the fund lose $10 million in any given year, the fund manager would have to recover that amount before becoming eligible for incentive-based compensation.