In effect, a net-long hedge fund has two components: an actively managed long fund and a market-neutral fund. One can measure the fees on both parts as a percentage of either assets or of alpha — value added. Measured as a percentage of alpha, the fees might be exorbitant.
Suppose a long-short stock hedge fund is $3 million long and $2 million short. In effect, this vehicle is a combination of two separate funds: A market-neutral fund with $2 million long and $2 million short; and a long-only, with $1 million.
Combining the two compels investors to pay hedge fund fees on both. Assume fees are 2% of assets and 20% of gains. In a bull market, part of the return on the long-only portion would be beta, the result of movement in the broad stock market. The manager would receive 20% of beta, appreciation the manager did not create. These fees could swallow most or all of the alpha remaining after other fees.