Abstract

http://ssrn.com/abstract=1115537
 
 

Citations (1)



 
 

Footnotes (2)



 


 



Who Charges More: Hedge Funds or Mutual Funds?


Mark Kritzman


Windham Capital Management


Journal of Applied Corporate Finance, Vol. 20, Issue 1, pp. 121-123, Winter 2008

Abstract:     
Using these two assumptions, the author provides a simple example that shows that a representative mutual fund's performance can be replicated by combining an index fund, which represents the mutual fund's passive component, with a hedge fund, representing the mutual fund's active component. When analyzed in this way, the fee of the combined fund turns out to be remarkably close to the actual fee of the mutual fund. This in turn suggests that the implicit fee for the mutual fund's small active component is comparable to the fees of the hedge fund.Explicit mutual fund fees are typically less than 1% of the assets under management. By comparison, the typical hedge fund charges a base fee of 2% plus a performance fee equal to 20% of net profits. Thus, hedge funds appear to charge far more for even comparable performance unless one takes account of the following:Using these two assumptions, the author provides a simple example that shows that a representative mutual fund's performance can be replicated by combining an index fund, which represents the mutual fund's passive component, with a hedge fund, representing the mutual fund's active component. When analyzed in this way, the fee of the combined fund turns out to be remarkably close to the actual fee of the mutual fund. This in turn suggests that the implicit fee for the mutual fund's small active component is comparable to the fees of the hedge fund.

Number of Pages in PDF File: 5

Accepted Paper Series


Date posted: April 2, 2008  

Suggested Citation

Kritzman, Mark, Who Charges More: Hedge Funds or Mutual Funds?. Journal of Applied Corporate Finance, Vol. 20, Issue 1, pp. 121-123, Winter 2008. Available at SSRN: http://ssrn.com/abstract=1115537 or http://dx.doi.org/10.1111/j.1745-6622.2008.00174.x

Contact Information

Mark Kritzman (Contact Author)
Windham Capital Management ( email )
5 Revere Street
Cambridge, MA 02138
United States
617-576-7360 (Phone)
617-576-7359 (Fax)
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