These hedge fund fees are getting ridiculous. Some are taking almost 60% of investment gains, according to a new Bloomberg report.

These days, a handful of large multistrategy funds dominate the hedge fund industry. Investors are falling all over themselves trying to write bigger and bigger checks into the same funds.

This means they can charge whatever they want in expenses. Those fees are reducing returns to very low levels.

Some funds are passing through 100% of their expenses to investors. Those funds returned just 6% after fees last year.

Six percent?! I could get 5.5% in a bank account!

Why should I give my money to a hedge fund that might lose it when I could get practically the same return, guaranteed with FDIC insurance, and the fee is 0?

Big hedge funds are operating like government contractors: cost plus. They pass all the costs on to you. This means they have every incentive to make those costs as high as possible.

Steaks all around! After all, we’ll never see a bill…

It all comes down to what Gordon Gekko said in one of my favorite movies, Wall Street:

“You are all being royally screwed over by these bureaucrats with their steak lunches, their hunting and fishing trips, their corporate jets and golden parachutes!”

Gordon Gekko

Funds should go back to the traditional 2 and 20 model. That’s already high enough! Limits on the costs they can pass through give managers a reason to keep them under control.

Otherwise, investors may just take their money elsewhere.

What do you think of hedge fund fees? Leave a comment and let us know!

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