I’m trying to work out what the deal is with hedge fund fees, as it has been bothering me for the past year.
For example, if I was searching for the hedge fund with the lowest fees, then I’d want to take into account any kind of hurdle rate, right? If I didn’t, I would simply be going off the base management fee, which is all well and good if it ain’t performing, but what if it is performing? I guess to fully understand hedge fund fees you would have to come up with a probability distribution which gives you some probability of hitting the hurdle rate and paying higher fees? How do you do that, given hedge fund returns are not normally distributed???
Guessing that lowest management fees is probably a good place to start and you probably don’t mind paying a slightly higher fee on good performance.
Keen to know, as one of my colleagues has been testing me out on my CFA knowledge and I’m a bit embarrased that I can’t tell him!