This is the first time LCH has ever quantified the high expenses that have become the bedrock of hedge fund firms and have helped mint multiple billionaires over the years. Warren Buffett once described those fees as “a compensation scheme that is unbelievable,” while Bill Gross, the co-founder of Pacific Investment Management Co., called them a “giant ripoff.” Such criticisms have largely been brushed off by an industry that researcher HFR says has grown sevenfold this century to manage a record US$4.5 trillion.
Hedge funds have long been regarded as notoriously expensive. A new research reveals just how costly they truly are for their clients.
Of the US$3.7 trillion in profits they have earned as an industry since 1969, nearly half or a staggering US$1.8 trillion was gobbled up as fees, according to estimates by LCH Investments, a fund of hedge funds. With soaring assets, hedge funds have raised their charges to 50.4% of gains, up from the roughly 30% they earned until the early 2000s.
