Well I think many fund managers regularly take on risk to achieve higher returns. They just won’t take on 100% downside risk while being taxed 10% on the upside.

I think this gets at a deeper point I'm trying to make.

If you truly can consistently beat the market, you are already making a killing with your _own_ money.

If you want to use _my_ money to place your bets (presumably b/c you want to leverage your market beating ability), I want a guarantee (because I'm more than happy to take the return of the index).

I follow, essentially you're viewing it like a loan + interest + a minor stake in the venture. If the venture fails, you still expect to repaid loan + interest and your stake in the venture is worth $0.

Unfortunately no one will agree to this as long as everyone else is willing to invest _and_ shoulder the risk

It sounds like they're simply critically evaluating the claims of beating the market.

If you can't beat the market with your own money, you shouldn't be trying to do it with someone else's.

If you can beat the market with your own money, why are you so worried about the downside? There should be little risk for someone who claims to be able to beat the market.

If they say that's too much risk, they likely don't think they can consistently beat the market.

That's right, fund managers expect their clients to take 100% of the downside risk and tax their clients 20% on the up side.

Where I disagree with you is that fund managers regularly take risk. They never take risk themselves, rather they supply all of the risk to their clients.

You've just found a way to restate "they don't truly believe they can (consistently) beat the market."

On the flip side-- a passive fund manager would take 100% downside risk of the fund failing to properly track the index, and only in return for a modest fee. Stated differently-- passive funds can and do consistently track the market.

That’s fair. I’d do it for just 1% of the upside.