Performance-based fees are often derided as way for hedge fund managers to fleece their clients. So why do institutions keep paying them?

A recent Journal article ponders the unthinkable: Could hedge funds actually be a good deal?

A report by Watson Wyatt shows that investment managers are winning in the pension sweepstakes...Guess who's losing.

In a guest posting today, veteran portable alpha advocate Angelo Calvello says hedge fund fees may look high - but they sure beat indexing.

If index funds are a commodity, then why are institutional investors paying such divergent prices for them? A research new study examines why.

Ever wondered why money management fees seem to be pretty stable even though the size of the average fund has grown over the years? So have researchers...

Forget the "social usefulness" of hedge funds, hedge entrepreneurs and traditional entrepreneurs have a lot more in common than that.

Buffett's bet that a prominent hedge fund can't beat the S&P raises a bunch of issues. Here are some comments and an analysis of his odds.

Experts ranging from LBS's Narayan Naik to Stanford's Myron Scholes weighed-in on everything from organizational silos to economic first aid in London today.

Imagine that financial markets were a McDonald’s restaurant.  Now imagine that the Golden Arches was running a promotion on its $5 “McAlpha” sandwich meal deal.  The sandwich, along with fries and a Coke was free while supplies last.  But there’s a catch.  As stocks of this tasty free lunch dwindle, you will be able to bid up [...]

Buying a hedge fund has always been a yes/no decision. But there is a small secondary market for hedge fund units, and it can provide some interesting insights.

There's a debate brewing in the hedge fund community right now over an academic paper on hedge fund alpha. Here's what you need to know.

If the history of asset management could be characterized as a struggle between active and passive management, are we nearing the end?

A comprehensive new report provides evidence of what we see as an alpha-centric revolution in asset management.

Data hot off the press suggests 130/30 funds have out-performed the market for the 5th year running - with higher fees.

The "high water mark" sounds so simple. Get back any losses before you earn an incentive fee. But this simple idea can affect managers in many unforeseen ways.

When arguments can be made that 130/30 investing and portable alpha are cousins, why then has 130/30 become the cat's meow and portable alpha growth is "muted"? Two academics have a theory.

Bear Stearns has surprised industry observers by launching a new mutual fund. Here are some of the prospectus details you probably won't find in the media.

Markets hit rock bottom five years ago this fall. As a result, 5 year returns are currently peaking - making closet indexing mutual funds look pretty smart...too smart.

Thomson News reports today on a Lipper study of UK mutual funds that shows many have not implemented performance fees in the wake of regulatory liberalisation.  The following observation from Lipper illustrates why the seemingly benign and boring topic of fees is central to alpha-centric investing. “As part of the wider industry phenomenon of differentiating between premium [...]

Like contestants on the venerable game show, The Price is Right, institutional investors seem to be taking wild guesses at the right price for 130/30 funds.

A new study suggests that some of the characteristics of hedge fund returns are not a result of their investment strategies, but are instead a result of their performance fee model.

Recent examples of hedge funds cutting fees raise questions about the appropriateness of such arbitrary adjustments.

In general, short-bias hedge funds rarely make money on a consistent basis. But at least one hedge fund group believes short-bias funds produce a lot of alpha - and they're willing to pay for it.

Recent media reports on hedge fund fees seem to paint a picture of both feast and famine. Who's right and who's wrong? It depends on your favorite Greek.

Funds of hedge funds are facing growing fee pressures. With the entry of penny-pinching institutions into the hedge fund market, how can these funds win new business while maintaining higher fees from legacy clients.

As the hedge fund industry matures, mega-managers are spinning out their back-offices into separate businesses. And all of a sudden, back-office backwaters are irrigating alpha country.

Investment News ran an editorial yesterday that is sure to raise the hackles of some in the advisory community.

By forcing the unbundling of retail financial services, recent regulatory developments have fundamental implications for alpha-centric investing.

Why did hedgie Jim Simon's get paid $1.7 billion last year? For that matter, why did Roger Clemens get over $20 million for a curtain call with the Yankees this year?

Alpha Male takes issue with Business Week's apples to oranges comparison of hedge fund and long-only fees.

A financial advisor predicts in this month's Financial Advisor magazine that "In the years to come, advisors will use alpha as a basis for charging client fees."

Bridgewater is the quintessential "alpha-centric" investor. But in this note, it argues that hedge funds are overly leveraged, replicatable using simple factors, and unlikely to perform when risk increases.

Warren Buffett's 2006 letter to Berkshire Hathaway shareholders takes a swipe at what he calls "the 2 and 20 crowd" (a.k.a. hedge funds). But if Berkshire was a mutual fund, it wouldn't come that cheap either...

Last week both Ford and Delta got off their deathbeds to hand out goodies to many of their employees.  Response was swift as bloggers and columnists asked why a company like Ford that lost $12.7 billion last year was in a position to hand out anything at all.  “What a waste!”, bloggers wrote.  “It’s all so [...]

The plot thickens in the continued blurring of the lines between your friendly neighbourhood mutual funds and those dastardly hedge funds.  According to this story by Investment News, Lipper covers over 200 mutual funds with a performance fee.  But catch this: 56% of these funds are managed by one company: Fidelity. Geoff Bobroff, a fund industry [...]

The hedge fund industry didn’t invent the performance fee.  Clearly, performance-based pay has been around a long time.  Large organizations have been dealing with the asymmetry, risk mis-alignment, and cultural resistance that come with performance-based compensation for years.  So we thought it would be interesting to explore existing examples of performance fees to see what lessons might be gleaned. In its [...]

UK-based hedge fund magazine Hedge Funds Review responded to yesterday’s posting on hurdle rates with a posting that suggests institutional investors should take the lead on factoring alternative beta into hedge fund pricing. Hedge Fund Review’s Solomon Teague agrees that the performance fee debate isn’t going away any time soon.    “In a world of alternative betas, you [...]

Ever typed Hedge Fund into Wikipedia? Here’s an excerpt of what you get: “A hedge fund is a private investment fund charging a performance fee and typically open to only a limited number of investors Funds may also specify a ‘hurdle’, which signifies that the fund will not charge a performance fee until its annualized performance exceeds [...]

Institutional Investor’s Daily ii reports today on a story at Financial News Online about hedge funds that charge more than the regular 2% management fee and 20% performance fee.  According to Financial News Online, over half of these premium-priced hedge funds underperformed the average of “their cheaper peers” and most underperformed the S&P.  Reports Daily [...]

“Improved Study Finds Index Management Usually Outperforms Active Management” By: Millicent Holmes, Brownson, Rehmus & Foxworth Inc. Published: Journal of Financial Planning, January 2007 The debate over whether hedge funds produce any alpha is essentially the same as the age-old debate between active and passive management.  This recent piece of research weights in on the state of actively [...]

By: Will Swarts, SmartMoney.com Published: January 12, 2007 A quick follow-up to our posting on UMAs being an enabling technology for retail adoption of portable alpha: this article illustrates we’re not alone in our belief. “Unified managed accounts expand on the basic function of conventional SMAs, which allow investors to own actual shares of stock, rather than shares of [...]

By: Lawrence Strauss, Barron’s Published: January 15, 2007 There is little argument that many mutual funds contain a whack of beta and very little alpha.  So a mutual-fund-replicating portfolio comprising explicitly of both alpha and beta would naturally require a lot more beta than it would alpha.  That’s why the price of beta is so critical to making [...]

Those of you in the hedge fund industry will recognize the name Alexander Ineichen. Ineichen has written several of the studies that form the foundation of today’s alpha-centric investing paradigm. Last month his new book, Asymmetric Returns hit book stores. We mentioned it on this blog and promptly reserved the first available copy to be [...]

By: Charles Paikert, Investment News Published: October 16, 2006 Investment News has run a couple of stories recently suggesting a new fee-model is on the horizon for the retail advisory and wealth management industries.  The first, described here, appeared about a month ago.  The second (next post) ran a couple of weeks later. Said Investment News: “The wealth management industry’s traditional [...]