Hedge Fund Mutual Fund Fees

Fees from Hedge Fund-Like Mutual Funds Hurt Returns

Several mutual funds thought they had finally found a way to compete with the big gains produced by hedge funds and the allure that the industry has for investors. Now, however, the mutual funds that sought to replicate hedge funds have made good returns but most of that that performance has been sapped up by the fees that the funds charge their investors.

The foray is not over, to be certain, but this puts a damper on excitement from non-accredited investors at getting the chance to place their money with hedge fund traders and traders using hedge fund-like strategies.

Altegris Managed Futures Strategy Fund, a mutual fund that allows less affluent clients to invest with some of the best-known hedge-fund commodities traders, has attracted $707 million since its start less than a year ago.

Investors in the fund lost 6 percent this year, and plummeting gold, silver and oil prices weren’t the only reason. The losses also reflect fees of as much as 2 percent of assets paid to the underlying traders in addition to the fund’s 2 percent management fee and 5.75 percent in upfront charges. If the fund had made a profit, as much as 35 percent of that would also have gone to the underlying managers.

Investors in U.S. mutual funds, by contrast, paid 0.8 percent in average fees last year, according to data from Morningstar.

“The fees are far higher than for less specialized strategies,” said Nadia Papagiannis, an analyst with Chicago- based Morningstar Inc. (MORN) “They’re promising the performance of hedge-fund managers, but what we’ve seen with funds of funds is that the performance is mediocre.” Source

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