[hhmc]

Why would anyone take the other side of this bet? It's an incredible financial instrument, that anyone on the buyside would buy in an instant (as formulated -- ignored fees/tcosts etc).

[stouset]

> Why would anyone take the other side of this bet?

People accept this bet every single day… when they buy actively-managed funds.

Actually they accept a worse bet. Instead of taking 100% downside risk and being taxed on anything above the index, they’re taxed on both gains and losses.

You’re right that it’s an incredible financial instrument. Actively-managed funds are extremely profitable… for fund managers, who get paid out of investors’ assets in bad years and also get to skim off the gains in good years.

[stavros]

If I can consistently make more than 10% on your money, I'll take the other side.

[hhmc]

If you can consistently make more than 10% you don’t need to hamstring yourself with this terrible deal, you can just get investment on typical terms.

[stavros]

If I can consistently make 30%, this terrible deal will make me 20%, whereas the typical terms of management fees will make me 5%.

[swexbe]

If you can consistently make 30%, a bank loan will make you 24%.

[stavros]

Fair point. I don't know why BlackRock did it, then.