Thanks To Hedge Fund Fee Structure, Pension Funds Will Pay $30 Billion Extra

One of the biggest arguments against active management is the fee structure of actively managed funds. With an annual charge of 100 basis points or more levied on investors in active funds, even if these funds track the market, they will underperform. In order for an investor to beat the market by owning an active fund, the fund would have to outperform the market by at least 100 basis point every year to justify its fee, which is almost impossible.

The classic 2/20 hedge fund model presents an even larger hurdle. A firm with this fee structure in place would have to beat the market by at least 200 basis points every year excluding...