Hedge Funds

In terms of fees, benefits of scale don't tip in favor of investors.


Despite the assumption that economies of scale would allow hedge funds to charge lower fees as they expand their asset base, an analysis of funds reporting to the Absolute Return database shows that exactly the opposite happens: On average, larger hedge funds charge higher fees.

The finding gives credence to arguments made by investors for years that larger funds ought to decrease their management fees. It's a criticism that has recently been expressed succinctly and forcefully in a four-page position paper by Larry Powell, deputy chief investment officer for the $16 billion Utah Retirement System.

Powell, who previously oversaw