In plain language, the manager who intends to deliver net returns 20 per cent better than the
market must earn a gross return before fees and transactions costs (liquidity tolls) that is more than 40
per cent better than the market. If this sounds absurd, the same equation can be solved to show that
the active manager must beat the market gross by 22 percent just to come out even with the market
net.
In other words, for the institutional investor to perform as well as, but no better than, the S&P
500, he must be sufficiently astute and skillful to "outdo" the market by 22 per cent. But how can
institutional investors hope to outperform the market by such a magnitude when in effect, they are the
market today? Which managers are so well staffed and organized in their operations, or so prescient
in their investment policies that they can honestly expect to beat the other professionals by so much
on a sustained basis?
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