There is a strong argument that, on average, hedge fund fees today are double what they should be.  Over the past five years, the typical hedge fund generated 2.3% alpha relative to a 60/40 portfolio before fees, yet negative alpha after fees.[1]  The difference is roughly the 300 bps or so that were paid in management and incentive fees.  Granted, a 60/40 portfolio generated unusually high returns over the same period and many hedge funds did much better.  However, when most investors are willing to pay 50% of true alpha generation, the notion of paying away more than 100% seems unjust.

The issue is that the fee structure of the industry has not evolved with institutionalization and asset growth.  As veterans of the industry know, the 2/20 fee structure was designed to provide small hedge funds with an incentive to outperform.  A high management fee would cover costs, while performance fees would align interests with investors – an inducement to attract confident, talented managers to deliver exceptional returns.

How times have changed.  Take a representative $10 billion equity long/short hedge fund.    A 2% management fee generates $150 million or more in pure profits; often, the founder gets paid $100 million or more to walk in the door in January.  Similarly, performance fees almost invariably are paid with no hurdle rate.  The same manager – assuming he’s consistently net long 30-40% – was paid an extra $200 million or more in 2013 simply because equities were up 30% plus.  To paraphrase a private equity titan, performance fees with no hurdle are, “after the wheel, God’s greatest invention” – for the managers.

As discussed below, a more equitable solution would be for management fees to decline as assets grow and for performance fees to be paid above a hurdle.  These two changes could save investors 100-150 bps per annum, improve net of fee performance, and better align incentives.

There are two ways to approach this:  a direct and indirect approach.  As discussed below, investors can pursue a model to negotiate as a group and extract lower fees from the 100 or so large funds that have attracted most capital post-crisis.  An alternative solution, discussed in a forthcoming note, is to migrate to a core-satellite model akin to the traditional asset management business – a lower cost core can reduce costs without diminishing overall performance.

The Investor Aggregation Model

Throughout the business world, firms purchase in bulk at reduced costs and pass much of those savings along to consumers.  Think of the impact of Walmart on consumer retail.  Consumers benefit from lower costs, the firm keeps a spread, and suppliers get scale orders.  Efficiency works.

The structure of the hedge fund industry today is not conducive to this:  buyers (investors) are highly fragmented and hence purchase services from (make investments in) suppliers (hedge funds) on a piecemeal basis.  Post-crisis, as institutional investors steered most capital to the 100 or so largest hedge funds, there’s much more concentration on the supplier side.  Investors tend to make new allocations to funds that are doing particularly well, where demand is highest and the track record of delivering excess returns, net of fees, is strongest.

The end result is that large managers have all the leverage in fee discussions.  Perhaps this is why even small discounts are treated as wins.  The largest investors, like sovereign wealth funds, reportedly will write $250 million checks and expect a 25 bps management fee discount – 5-10% of all-in fees.  At a conference last year, a consulting firm acknowledged that $40 billion of (largely nondiscretionary) client capital resulted in fee savings of 10-15 basis points – or 2-4% of the total.  Taking a different approach, some investors opt to invest in lower cost, but less liquid, share classes – those discounts are generally in the range of 15-20%.  However, when you give up valuable liquidity, you take on added risk:  if the fund runs into trouble, more liquid investors might leave you holding the bag.

In this context, even small discounts are treated as wins – paying $90 certainly is better than paying $100.  But what if “fair” is really $50?  The solution, in theory, is for investors to band together to negotiate fees downward.  This would shed light on what is an achievable, and hopefully equitable, fee level.

Where is the Most Bang for the Buck?

The first goal should be for management fees to decline with asset growth – this would benefit both early and new investors.  Excessive management fees, in a sense, are “pure alpha” – the manager gets a check every month regardless of whether the market is going up or down; conversely, when investors overpay, alpha is reduced dollar for dollar.  Performance should improve as well:  excessive management fees can lead to risk aversion since preservation of firm value trumps risk taking.  (Note that some emerging managers now offer a “founders” share class where management fees decline for early investors as assets grow; although later investors will still pay full management fees, this is an excellent step in the right direction.)

Likewise, the second goal should be for performance fees to be paid above a relevant hurdle rate.  For most equity long/short funds, a hurdle of 30-40% of the appropriate equity index is reasonable.  Over 2010-14, this might have saved 100 bps per annum:  in rising equity markets, investors don’t overpay.  On the other hand, in a severe market decline, the manager can be rewarded disproportionately:  200-250 bps extra if he’s flat when the S&P is down 30%.  Good for investors, good for managers.  For lower beta funds, an alternative hurdle like LIBOR plus 400 bps seems reasonable:  after all, do the managers really think they can’t consistently beat this over time?

What are the Obstacles?

As discussed above, the first is industry structure.  Fragmented buyers have little leverage, but a $1 trillion aggregator could dictate terms.  When Walmart places a $1 billion order, no one questions its ability to perform.  Here we have a chicken and egg issue:  no investor or consulting firm controls enough capital to truly shift leverage.  It’s worth noting that there have been several failed attempts at this, such as investable indices, where the absence of capital up front raised credibility issues and led to adverse selection.

A parallel obstacle is the incentive structure for most allocators:

  • Banding together requires ceding some autonomy which most allocators are loathe to do – if investors break ranks, leverage is lost.
  • Current investors have the most leverage — fifty $50 million investors ready to redeem need be taken seriously by even the largest firms. However, disappointed allocators are much more likely to fire an underperforming manager rather than press for changes in the current fee structure.  It’s simply easier to allocate to a new manager who has been performing well, and hence has justified prior fees.
  • Allocators would have to acknowledge that, in many cases, fees are inequitable. For a current manager, this raises thorny questions about why the fund was recommended in the first place.  For new allocations, it requires a determination of what is and is not justified – not easy to do given the cyclicality of performance.
  • In order to negotiate effectively, allocators need to be prepared walk away and, hence, be excluded from certain managers – difficult to do when access to star managers is an important selling point.

The result is that many funds fail to justify the fee structure, yet the only practical recourse for investors is to redeem and try a different fund.  Since performance is often frustratingly cyclical, high fees paid in one year won’t be recouped if performance suffers the next.  As we know, it’s also very difficult to predict which managers will do better going forward.  Both these points argue for a more aggressive push for lower fees irrespective of recent performance.  The obstacles to this, as noted, are significant.


In a sense, there already are aggregators, if not on the scale described above.  Large funds of funds appear to have meaningfully evolved their models post-crisis to better align incentives.  Some now rarely allocate to flagship funds, preferring instead to negotiate special feeders that concentrate on specific strategies and investment teams.  Reportedly, incentive fees for less liquid strategies are paid over several years rather than annually.  This adds credence to the notion that an investor with real buying power – say, a $500 million feeder to start – can make meaningful progress.  It may also explain why some of those funds of funds have performed much better than industry averages in recent years.

Another alternative is for very large institutions to concentrate their investments.  A typical portfolio might contain five large multi-strategy funds whose portfolios substantially overlap.  Rather than spread the investments – say, $200 million to each – would the investor be better off asking each manager to bid on the whole $1 billion?  This would increase concentration risk, but given how diversified the funds are, probably not as much as many would fear.  It would also shed light on how allocators rank the managers:  maybe Manager A is worth it at full fees, but Manager B is equally attractive at half the fees.  A counterargument is adverse selection; however, it’s hard to see how this would be an issue with the largest funds, where there already is an institutional stamp of approval.

Institutional consulting firms are another option.  They serve as gatekeepers for tens, and in some cases hundreds, of billions of dollars of investment capital.  Most mandates, though, are non-discretionary, so it’s not clear how they would wield their allocation authority.  Presumably, they could remove a recommendation on a manager solely due to fees, but it’s much more likely that such a decision would be based on performance (which, of course, is tied to whether the fees make sense).

Given the industry structure and agency issues described above, real progress on this front is unlikely in the near term.  A more realistic alternative, as discussed in a forthcoming note, is a shift to a core-satellite model.


[1] HFRI Fund Weighted Composite index vs a 60/40 portfolio consisting of the MSCI ACWI and ten year Treasury Note over 2010-14.  For caveats on the use of alpha as a measure of outperformance, see Lies, Damned Lies and Alpha.


We’re surrounded by investment products that track indices. S&P index funds seek to replicate the performance of the S&P 500 index – easily accomplished by simply buying the constituent stocks in designated weights. Other indices are more difficult to track – for example when the product invests in futures to approximate spot market returns (GSCI) or acquires only a subsample of index constituents (Barclays Ag).

A new generation of indices promises to emulate more complicated investment strategies, such as currency carry, volatility and roll trades. Investment banks now offer institutional investors an array of derivative products tied to such indices, and asset managers are packaging them into ETFs and other fund products.

One problem, however, is that newly created indices tend to overstate historical, hypothetical performance. From a commercial perspective, there’s little point in launching a new index if the pro forma returns are unattractive; consequently, there’s a strong incentive to adjust the calculation methodology until the results look favorable.

Further, unlike mutual funds, indices can be created and published with minimal disclosure of key information, such as when the index went “live” and what assumptions are made about trading and other costs. The combination can mislead investors who may expect actual net of fee fund returns to match hypothetical gross of fee index returns.

A case study is the PowerShares Multi-Strategy Alternative Portfolio fund (LALT), an active ETF launched at the end of May 2014. This Fund seeks to match or outperform the Morgan Stanley Multi-Strategy Alternative Index (Bloomberg ticker MSUSLALT), comprised of a combination of risk premia strategies designed to deliver absolute returns.

Unrealistic historical index returns

On Bloomberg, the Index data begins on 1/1/2003.  Given the start date, it is possible that the Index was launched sometime in 2013 with roughly ten years of backfilled data.  Unfortunately, there is no requirement to differentiate between backfilled and live results, and neither the LALT prospectus nor Bloomberg sheds any light on when the Index went “live.”

The backfill thesis is supported by historical performance.  The following chart shows the Index returns for the ten years preceding the launch of LALT against the S&P 500 and HFRIFOF index.

The Danger of Indices - 1

Over the decade, the Index “returned” 6.83% per annum with an annualized standard deviation of 2.93% and a Sharpe ratio of 1.64.  The maximum drawdown – during a period that covers the Great Financial Crisis – was only 2.33%.  The Index “delivered” almost 90% of the return of the S&P 500 with one fifth the volatility.  Annual performance was almost 350 bps higher than that of the HFRI Fund of Funds index, which has limited data bias and generally represents live performance. The following table provides some summary statistics:

The Danger of Indices - 2

If the Index represented actual performance, it would rank among the best performing hedge funds over the past decade.  In fact, the risk adjusted return (Sharpe ratio) was better than 97% of all hedge funds in the HFR database over the same period.  Only three live hedge funds had smaller drawdowns. Plus, unlike investing in illiquid and expensive hedge funds, the performance in theory was achievable at low cost and with daily liquidity.

Disconnect between hypothetical and live returns

Prior to May 2014, the Index would have outperformed 97% of hedge funds. Since then it has lagged hedge funds by 600bps.

Since launch, however, both the Index and Fund have failed to meet these high expectations – to say the least.  Each is down approximately 8% since May 2014 – underperformance of 600 bps versus the HFRXGL (daily investable hedge fund) index, which itself tends to underperform the HFRIFOF index by 100-200 bps per annum due to adverse selection bias.  The drawdown over the first seven and a half months is more than triple the hypothetical drawdown over the ten preceding years – during a time when the S&P has risen 8%.

The Danger of Indices - 3

Looking at the live returns, it appears that the Fund and Index were hurt when the Swiss Franc decoupled from the Euro on January 15, 2015.  This underscores the backfill issue:  while the Index “sidestepped” any major adverse market events over the past decade, both the Index and Fund walked into a proverbial propeller seven months after launch.

This issue is particularly timely given the plethora of complicated risk premia products introduced by investment banks over the past two years.  Most indices created recently will be subject to the same backfill bias highlighted above.  A live index, the Merrill Lynch Foreign Exchange Arbitrage Index, is down over 6% in January – but will currency carry indices launched in the future show better pro forma results?  And will investors appreciate this distinction?

Most investment bank indices are subject to the same backfill bias.

 In order to better align investor expectations with likely performance, indices should be subject to the same rigorous disclosure requirements as funds:  investors should know when the index went “live,” which performance is hypothetical, and what assumptions are made about costs and expenses.  Otherwise, the tendency to publish only successful indices will persist.

By one estimate, the hedge fund industry managed $2.6 trillion in capital at year-end 2013.  Many expect growth to accelerate over the coming five years as institutional investors like US pension funds seek alternatives to investing in low yielding fixed income assets.  Deutsche Bank, for example, predicts that industry assets will grow by another $400 billion this year alone.

This growth comes in the face of widespread discontent about the cost of investing in hedge funds.  In the pre-crisis period, when hedge funds routinely outperformed traditional assets, the cost of investing was largely overlooked.  In recent years, though, as the average hedge fund delivered single digit returns, high fees increasingly have come under scrutiny.  To put the issue in context, investors paid approximately $95 billion in fees in 2013, or 44% of what their investors took home.  By our estimate, this figure is twice what it should be:  in other words, investors overpaid by a staggering $47 billion.  The same conclusion can be drawn for each year since the financial crisis.

Why is this?  In the post-crisis period, institutional investors and their consultants partially brought down the cost of investing by “dis-intermediating” funds of hedge funds – in essence, cutting out the middleman.  However, this represented only a small percentage of overall fees. Driven in part by risk aversion (you don’t get fired for hiring IBM), those same investors instead steered capital directly to the largest hedge funds – the $10 billion plus firms you read about in the press.  By some estimates, 100% of net capital inflows post-crisis went to the top 100 managers.  The big have gotten bigger and the small have struggled.

Why is this problematic?  Hedge funds charge two types of fees:  a management fee and a performance fee (typically 20% of profits).  When hedge funds were small, relatively high management fees (1.6% on average) were necessary to cover costs and to enable a manager to expand the research team, hire a head of operations, etc.  Performance fees were geared to better align the interests of investors and the manager, something that was sorely lacking in the mutual fund business.

As the industry matured, the fee structure didn’t.  A typical manager with $5 billion in assets under management earns $80 million in fees – most of it pure profit.  Incremental management fees don’t add to research coverage or a more robust investment process; they simply increase the manager’s take home pay.  Further, as funds grow, managers take less risk to preserve the value of the business.  Performance fees then no longer provide incentives for stellar returns, but rather become an annual tax on investors.  The absence of a hurdle rate on incentive fees meant that the 32% rise in the S&P 500 index last year resulted in 200bps of overpayment across the industry. When you overpay for beta, it is a dollar for dollar reduction in alpha: it’s why fee reduction is the purest form of alpha.[1]  Skill should be rewarded handsomely, not luck.

In the rest of the asset management industry, large investors get fee concessions; it’s why retail investors have the odds stacked against them.  However, when institutional investors fall over themselves to invest in a name brand fund, the manager has little incentive to cut fees.  Counterintuitively, institutionalization has failed to result in real cost savings for most large investors.  And as we know, the cost of investing is one of the most important factors in long-term investment performance.

There are four potential solutions.  As noted recently by the head of hedge fund allocations for a large pension fund manager, sophisticated investors will migrate to a combination of hedge funds and comparable, but far less expensive, strategies like dynamic and alternative betas, in which investors break down the drivers of hedge fund returns and invest in them directly.[2]  What you don’t get in manager talent, you save in lower fees.

The second option is for investors to band together to demand a material reduction in fees.  A group of investors that constitute half the assets of a $5 billion fund has a much better chance to bring down fees than if each $50 million investor negotiates separately.  The two areas of focus should be to bring down management fees (as a percentage of assets under management) as assets increase and to insist that managers only earn performance fees above a specified benchmark.

A third possibility is to steer capital to smaller hedge funds.  Interestingly, the have and have-not bifurcation of the industry may be a catalyst for reform.  Many smaller hedge funds, facing years of difficulty in raising capital, are much more willing to drop fees today.  An institutional investor who can invest $50 million with a $200 million manager can pretty much set its own terms.  Importantly, since smaller managers generally outperform larger ones over time[3], investors could see a dual benefit of a pick up in performance and lower fees.

A fourth area garnering attention recently is the alternative mutual fund space, where hedge fund strategies are managed in registered investment funds.  These products are in their infancy with short track records and an unproven business model.  While some products are offered at roughly half the cost of investing in hedge funds, the fee structure still is double or more that of traditional mutual funds.  The elephant in the room is whether the performance of these products will match those of the hedge funds they emulate.  Most are marketed off track records of hedge funds, not mutual funds, and the mutual fund structure, by design, has many more constraints.  It’s a bit like asking a champion boxer to fight with his shoelaces tied.  The irony is that the appeal of hedge funds twenty years ago was to take talented investors and free them of the (many) constraints of managing assets in a mutual fund structure; we now appear to have come full circle.[4]

Pension funds, other institutional investors and their advisors need to take a hard look at this issue. As one pension fund trustee reportedly observed, at some point you stop looking at fees as a percentage of assets and focus on the dollars involved.  A pension fund with $4 billion invested in hedge funds that overpays by 2% per annum throws away $80 million a year.  Over a decade that’s $800 million.  To paraphrase the famous quote, a million here and a million there and soon you’re talking about real money.


[1] See Fee Reduction and Alpha Generation

[2] See Hedge Fund Replication: A Practitioner’s Scorecard and Two Unanswered Questions About Alternative Betas

[3] See Performance of Emerging Equity Long/Short Hedge Fund Managers

[4] See Performance Drag of Alternative Multi-Manager Mutual Funds

By Andrew D. Beer, Chief Executive Officer of Beachhead Capital and Michael O. Weinberg, Adjunct Professor at Columbia University 

Well-documented advantages of alternative mutual funds include daily liquidity, lower all-in fees, greater regulatory oversight, lower minimum investment requirements and the absence of partnership K1s. These features make alternative mutual funds a viable investment for defined contribution plans and retail investors, an untapped multi-trillion dollar market for hedge fund managers.

The opportunity for fund of funds managers is clear. Post-crisis, funds of hedge funds faced a sharp decline in profitability due to a combination of disintermediation, declining fees and rising costs (e.g. customization). Gone are the days of managing a highly profitable co-mingled fund of hedge funds where each incremental dollar of revenue drops to the bottom line. Defined benefit pension plans – long-time investors in funds of funds – are in steady decline; by contrast, defined contribution plans are growing rapidly and current exposure to alternatives is de minimus. Alternative multi-manager mutual funds (AMMFs) could represent a new dawn for funds of funds:  co-mingled, highly scalable vehicles with strong potential investor demand.

However, mutual funds are far less flexible than hedge funds: all registered funds have structural limitations on leverage, shorting, illiquid assets, concentration and other criteria. This contradicts a core tenet of the hedge fund industry:  that talented managers perform better with fewer constraints. In fact, many early hedge fund managers were former mutual fund managers in search of a less constrained investment vehicle. By definition, structural constraints almost certainly will result in a performance differential over time:  the question is, by how much?  This paper looks at the evidence to date, some of the underlying causes, and raises some pertinent due diligence questions for potential investors.

1. Performance Drag: Evidence to Date

There is a limited amount of live data on AMMF performance. Of the thirteen funds that we currently track, only three have track records that extend back more than a year or two. Only five of thirteen have full year track records for 2012, while eight have full year track records for 2013. Any conclusions below should be taken in this context.

With that caveat, the chart below shows the full year performance of those five and eight funds, respectively. The magnitude of the performance drag is noteworthy:  the average AMMF underperformed the HFRI Fund of Hedge Funds index by 311 bps in 2012 and 420 bps in 2013, net of fees (the return figures are for institutional share classes only). The average AMMF also underperformed an index of liquid hedge funds (HFRX Global Investable Index) by approximately 200 bps in each year.

Full Year Performance Comparison 2012-13 

This is particularly surprising given that all-in fees in AMMFs are 150-250 bps lower than those in fund of fund funds; all things being equal, this should lead to higher performance. While the average AMMF charges slightly more than 200 bps per annum with no incentive fee,[1] the typical fund of hedge funds has all-in fees of 3.5% to 4.5% (75-150 bps per annum on top of underlying hedge fees of 1.6% and 20%, on average). On a fee equivalent basis, the performance differential rises to 448 bps in 2012 and 681 bps in 2013.

Estimated Fee Equivalent Performance Drag 2012-13

2. What Explains the Performance Drag?

When the HFRX GlobalInvestable Index was launched over a decade ago, performance drag initially was over 400 bps per annum, primarily due to adverse selection bias. That differential has come down over time, but still is persistently 100-200 bps per annum. Other liquid hedge fund strategies – investable hedge fund indices, managed account platforms, 130/30 funds, and UCITS products – have each underperformed hedge fund counterparts by around 200 bps per annum. This supports the general rule that liquid alternative strategies have a persistent long term performance drag relative to actual hedge funds.  (See The Performance Drag of Liquid Hedge Fund Strategies at

In the AMMF space, performance drag is likely to arise in two forms. First, following the HFRX example, hedge fund managers most eager to manage sub-accounts at reduced fees may be of a lesser quality. This may explain in part why the Hatteras Alpha Hedged Strategies Fund, the only fund with a ten year track record, underperformed the HFRIFOF since inception by 134 bps on an annualized basis since inception (including negative alpha of 1.8% given somewhat higher beta) and suffered much more pronounced drawdowns during the crisis (down 31.6% in 2008).[2]  On the surface, the current pool of subadvisors appears to be much more credible than the early participants in the investable hedge fund indices.

A more serious issue, then, is that high quality managers simply may not be able to deliver comparable returns within the constraints of the ’40 Act structure.[3]  While it is impossible to make an apples-to-apples comparison,[4] one indirect method is to compare the performance of AMMFs to a portfolio of hedge funds managed by the same subadvisors. Here we find that AMMFs have on average underperformed an equally weighted basket of the “flagship” hedge funds of the subadvisors by over 200 basis points.[5]  On a pre-fee basis, the differential rises to over 500 basis points.[6]

Why is this?  In addition to investment constraints, hedge fund managers have a strong incentive to avoid cannibalizing their core businesses; therefore, given the general absence of incentive fees, the most attractive or capacity constrained trades are likely to wind up in higher fee vehicles.[7]  Irrespective, given the importance of the hedge fund managers’ reputations in marketing AMMFs, it is reasonable for investors to require AMMF managers to break down performance by subaccount relative to the most comparable hedge fund managed by the same subadvisors.

A final and important distinction is that AMMF managers directly pay the subadvisors:  unlike in a fund of hedge funds, each dollar of subadvisory fees comes directly out of the pocket of the AMMF manager. AMMF managers therefore have a strong incentive to select subadvisors who will work for 1% or less. A fair question for any AMMF sponsor is how many subadvisors/strategies were rejected due to high fee expectations, and why this does not lead to adverse selection.


In conclusion, while it’s still very early in the game, our analysis indicates that AMMFs are likely to be subject to a persistent performance drag over time. Based on the more robust data pool from other liquid alternatives, our expectation is that the performance drag should be around 200 bps per annum, net of fees. Fortunately, since return information is readily available on ’40 Act funds, it will be much easier to make ongoing comparisons, and we look forward to updating this analysis in the coming year or two.

This does not mean that AMMFs are necessarily inferior to hedge funds of funds. The structural advantages are very real, and will be worth more than 200 bps per annum for many investors. Further, investors who previously have been precluded from investing in hedge funds may find AMMFs to be a valuable diversifier.

As of early 2014, the evidence suggests that the performance drag will be higher than many investors realize and that the (real) advantages of greater liquidity, lower minimums and reporting simplicity are likely to come at the cost of diminished returns.


[1] Most funds currently include fee waivers and/or rebates to bring down all-in fees. The average rebate among 13 funds included in the study currently is 48 bps per annum. Note that fee rebates generally have a finite life, so a relevant due diligence question is the extent to which fee rebates will continue going forward.

[2] The institutional share class of the Hatteras fund was not introduced until late 2011, whereas the retail share class was introduced in 2002. The retail share class is referenced here.

[3] This is the principal reason the SEC does not permit prospectuses to show the hedge fund track records of the subadvisors. In fact, only one of the AMMFs (Balter) requires the subadvisors to run portfolios substantially identical to their hedge funds and therefore is permitted to disclose the track records of the subadvisors’ hedge funds in the offering documents.

[4] Due to a lack of transparency of manager weights in AMMFs and strategy overlap between AMMF sub-advised accounts and predecessor hedge funds, among other issues.

[5] More precisely, of the eight funds with full year performance for 2013, we have return data for the flagship hedge funds on at least 70% of the managers of four of them. Those AMMFs underperformed an equally weighted portfolio of the available hedge funds by an average of 314 bps, net of fees. Assuming that the AMMF managers are paid 100 bps of the management fee, the fee equivalent differential is 214 bps on average.

[6] At a conference in 2013, one prominent multi-strategy hedge fund firm analyzed the expected performance differential in their flagship fund and canceled plans to create a ’40 Act fund after determining that they would suffer an 800 bps drag.

[7] Note that one possible window into this may be which managers advise assets of wholly-owned offshore subsidiaries. In general, offshore subsidiaries can pay management and even incentive fees to managers without disclosure at the fund level. This is a relevant due diligence question for any funds with offshore subsidiaries.