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To have "skin in the game" is to have incurred monetary risk by being invested in achieving a goal.
In the phrase, "skin" is a synecdoche for the person involved, and "game" is the metaphor for the actions on whatever field of play is at reference. The aphorism is particularly common in business, finance, and gambling, and is also used in politics.
The origin of the phrase is unknown. It has been attributed to Warren Buffett since in Buffett's first fund he raised $105,000 from 11 doctors, himself placing a token sum of $100.00 as his "skin in the game"; William Safire dispelled the Buffett origin. Another possible explanation is that the phrase draws its origins from William Shakespeare's The Merchant of Venice; in which the antagonist, Shylock, stipulates that the protagonist, Antonio, must promise a pound of his own flesh as collateral, to be exacted by Shylock in the event that Antonio's friend Bassanio defaults on the loan to which Antonio is guarantor.
The term is used to ask or convey an owner(s) or principals undefined but significant equity stake in an investment vehicle where outside investors are solicited to invest. The theory is that principal's equity contribution is directly related to the stability of the investment and confidence that management has in the venture and is also (falsely) strongly correlated to the expected yield of the investment.
Research has shown that there tends to be a negative correlation between excess "skin" and negative returns.
The main issues surrounding "skin" or excess "skin" is the principal–agent problem whereby transparency and fiduciary obligations are disregarded by principals who have capital or excess capital (skin) tied into an entity. Many banks and other financial institutions bar employees from having any "skin" where client capital is managed, principally to address the issue of Front running and commingled funds (MF Global). Investment structures such as hedge funds, private equity, Trusts and Mutual funds are legally limited to a minority investment positions or are done to create a tax efficient structure. Typically equity inputs by these fiduciaries are around 0.5-2%.Nassim Nicholas Taleb and Constantine Sandis have argued for skin in the game as a rational and ethical heuristic for all risk-taking.