Contrary to the impression given by your Aug. 21 editorial, most investors in alternatives do act on their fiduciary responsibility to discover and justify fund expenses, and regularly negotiate changes when these expenses are out of line.
Firstly, fund expenses are disclosed in audited fund financial statements. You just have to read them. Secondly, expenses are small for most hedge funds, averaging 17 basis points (median of 10 basis points) for typical large institutional-quality hedge funds, and are intended to cover administrative, legal, tax and audit costs.
Sometimes the basis-point cost can reach into the high double digits, but it is generally when managers incur substantial outside legal expenses associated with investments.
Finally, hedge funds weren't the first to pass on the operating expenses of managing an investment vehicle to investors. Private equity funds do the same, as do traditional mutual funds and commingled vehicles.
Stephen L. Nesbitt
Marina del Rey, Calif.