Added Hedge Fund Expenses Not Fee-Nominal

It’s unclear how investors will react to what is being called industry’s “dirty little secret.” That’s how one fund of hedge fund CEO referred to expenses typically charged to investors that Investment News says could tack on 8% to client costs beyond the 2% management and 20% performance fees.

It’s unclear how investors will react to what is being called industry’s “dirty little secret.” That’s how one fund of hedge fund CEO, who remains nameless, referred to expenses typically charged to HF fund investors that Investment News says could tack on another 8% to client costs beyond the traditional 2% management and 20% performance fees.The expenses, according to IN, remain under the investor’s radar because, says the CEO, “they don’t show up on a spreadsheet, and you often just see a blended number that has all the expenses buried in it, completely unidentifiable.” The expenses could cover audits, legal services and the like, but also purchases arguably unrelated to the management of the fund, such as an office gym and fine art, says IN, noting that HFs “can get away with it…because performance is so good.” One consultant, remaining anonymous for obvious reasons, mentioned two Illinois-based hedge funds for “high fund expenses.” The consultant’s honor roll – meaning hedge funds that keep expenses in line – include Dallas-based Carlson Capital, New York’s Angelo Gordon & Co., Wisconsin-based Stark Investments and New York-based Brencourt Advisors.