Deprived, what incentives, if any, are structurally built into this system over the long-term to give you an incentive to maximize the capital, or at least, manage it wisely? The management fees are one-time payoffs for you. It doesn't seem like you are obligated to actually own any .SELLING or .PURCHASE, and if you (for example) personally chose to go long on .MINING alone your economic incentives might not be to maximize the capital, beyond a certain point, although I haven't really thought that through.
A good question - and illustrates the reason why, in nearly all cases, management fee should be based on profit rather than on sales. I believe this set of securities to be an exception to the general rule and will try to explain why. But first let me give an assurance - and explain why PART of your argument is wrong (the general question remain an entirely valid one though).
It is my intention that I will always hold a significant position in MINING and/or SELLING myself. I'm not going to disclose which of those I currently hold most - and that may well change over time anyway. My view is that NEITHER of MINING or SELLING are intrinsically better than the other - which one it makes most sense to hold depends entirely on the prices at which they trade (compared to the investor's own expectations of future difficulty). So even if I hold a lot more of one than the other at present that ratio could reverse at any point in the future if prices change.
The danger (in terms of lack of incentive for me) is NOT if I go long on MINING rather than on SELLING - for 2 reasons :
1. Even if were long on MINING right now, if prices move then my view could change causing me to want to move to SELLING. Obviously that gives me an incentive to have sound investments - as when I change the income (and the reliability of the capital) becomes mine.
2. If I'm long on MINING then good management of the capital increases the maximum payout I can receive. Specifically, at any difficulty change where the increase in capital cover (expressed as days of dividends) is less than or equal to the number of dividends paid to MINING on the previous difficulty there would be NO dividend for SELLING and all capital growth would be retained as cover for MINING.
The danger in terms of commitment from me is if I sell ALL my MINING and SELLING and have no (or a negligible) stake at all left. Now that will NOT be the case (and I'm fine for burnside to confirm at any time that I hold at least 3K combined MINING+SELLING - including PURCHASE as 1 of each. Only time I'd fall below that would be temporarily if I were able to sell BOTH at a price exceeding my cost to replace them with a PURCHASE). Obviously (I hope) I can't expose my personal portfolio - as that would reveal precisely what I held and what I had up for sale.
Even ignoring that, there IS still good reason to believe I'd be committed to doing a good job - even if I held no shares at all.
1. My reputation. If I plainly make bad investments, fail to maintain liquidity or don't try to invest at all then my reputation will suffer. I like to think I have a good reputation so far for doing a good job - I don't want to damage that.
2. My profit. My current fee may be only on sales of PURCHASE, and not directly effected by how I manage the fund, but what is gong to happen to sales if I obviously do a bad job? What will happen to sales if I obviously do a GOOD job and PURCHASE becomes tempting in its own right as medium-term investment? The answers to those questions should clearly show a financial motivation for me to do a good job even if I held not direct stake myself.
3. My initial intent. It was never my expectation that the low management fee on sales would make me any significant profit. My intention was always to be able to make a profit myself by trading/holding MINING and SELLING. And that then leaves me getting direct benefit from sound management of funds - the same as everyone else.
I haven't rushed into investments yet - because investments have to be approved by a vote of SELLING (other than the one we already have). And I didn't want to pass such votes immediately whilst I held an excessive chunk of voting power from my direct purchases and from my trade-in of LTC-ATF.B1. I'll be posting later tonight with the first few proposals for discussion - but not initiating votes just yet.
Now let's look at the alternative ways I could have taken fees:
1. As a percentage of all payments made out. This is actually how I initially wrote the contracts. I would then be effectively getting a percentage of all sales of PURCHASE AND a percentage of all capital growth. I removed this for a bunch of reasons:
a) It added a LOT of text and complexity to the contract - as there's a lot of places where payments get made out.
b) As a result of a) it adds a lot of complexity to the calculation of management fee.
c) a) and b) together mean less transparency - it's less OBVIOUS to investors what I'm taking and when.
d) The net result would not be a lot different - because we'll only ever be touching low-risk investments (with commensurate low rewards) the bulk of fee would still be on initial sales.
2. By taking management fee as a (much larger) percentage of (total returned capital - total received capital). So I'd take my fee only when either the fund ended OR total payments to date exceeded total sales. That means my reward isn't directly for running this - but instead a percentage of what profit I make using the capital.
On the face of it that's ideal - as it obviously means I want to maximise profit from investment. But unfortunately the truth isn't so simple. If I get a significant percentage of profit but don't bear ANY losses then it actually gives a direct incentive to gamble or take high-risks. I mean flipping the whole bank-roll on a 50/50 S.DICE spin would be MASSIVELY +EV for me. If it loses I lose nothing - if it wins I get a good percentage of the profit.
Now I'd never do that sort of thing anyway - but my pay being based on profit is inevitably going to have some non-zero impact on how I assess investment opportunities. Extreme examples like S.DICE are clearly not allowed by contract anyway - but it remains a bad idea to define in contract a financial incentive for a manager which encourages behaviour directly detrimental to one class of investors (MINING). And that's a problem which exists far more here than in other securities : MINING and SELLING do NOT have the same interests when it comes to investments.
That is why MINING don't vote on investments - but SELLING do. If MINING had to vote as well then in nearly all scenarios a rational MINING voter would vote no on ANY investment - as the majority of time they won't see the benefit of it. But SELLING actually have an incentive to take a level of risk ABOVE that which it would be fair to impose on MINING. So what keeps SELLING in check? I do - as I control what votes occur and also whether or not I invest even when something is approved. And if I'm the only thing ensuring MINING get treated fairly then I absolutely can NOT have a management fee structured so that I'm financially rewarded for risk-taking beyond even the level SELLING would want. Do note that whilst SELLING should STILL have a very low risk threshhold it IS going to be significantly higher than MINING's - and there's nothing to stop a gambler or two getting a lot of SELLING and wanting to gamble.
In short, if you believe I'll act with integrity and commitment then the current system IS the best one. If you believe I won't act with integrity or will be lazy then at least the current system gives me a financial incentive NOT to do really stupid things. The current system means I have no conflict of interest between maximising my personal gain and ensuring fair treatment for both MINING and SELLING.
Hope that explains it a bit.
EDIT: Just to add, at present I hold a 4-figure number of BOTH MINING and SELLING (I haven't been trying too hard to sell mine yet).
