Would you pay 8% in fees for an illiquid alternatives fund?

The fees with Blackstone Group's nontraded fund of hedge funds make 2 and 20 not so bad

Jan 15, 2014 @ 12:01 am

By Jason Kephart

If the thought of paying the classic “two and 20” to a hedge fund makes you queasy, you may want to look away.

Private-equity giant Blackstone Group is soliciting new shares for its $300 million Blackstone Alternative Alpha Fund, which carries a price tag that makes 2% in annual fees and 20% of profits look like a clearance sale. The nontraded fund of hedge funds has all-in annual costs of 8.28%, according to a filing with the Securities and Exchange Commission.

That includes Blackstone's 1.25% management fee, 2.18% of “other” expenses such as investor servicing and custody fees, an ongoing 0.85% distribution fee, and 5.83% of underlying fund fees. That all adds up to more than 10% in fees, but Blackstone has agreed to waive 1.83 percentage points of them.

The average liquid multialternatives fund charges 1.56%, according to Morningstar Inc.

On top of the Alternative Alpha Fund's expense ratio, there is also a 3% sales load and a 2% redemption fee if shares are sold within 12 months of purchase. The fund could therefore cost upwards of 13%, if the shares are sold before one year ended.

It's not that easy to sell shares though. The fund only repurchases shares periodically.

So what do you get for 8% of assets annually and limited liquidity?

A fund of 19 different hedge funds chosen by Blackstone, including 12 long/short equity managers, two global macro managers, two multimanager managers, one managed-futures fund, one credit-driven fund and one event-driven fund. Of course, that mix is subject to change at any time.

The fund has manage to outperform despite its expense-laden head winds. From its launch in April 2012 to the end of last September, the fund gained more than 11%, according to its most recent semiannual report. The Morningstar MSCI Composite AW Hedge Fund Index, an asset-weighted composite of nearly 1,000 hedge funds, had a return of just 5.35% over the same time period.

Still, that doesn't answer the question of whether you get what you pay for.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Advisers should look beyond 529 plans for college planning

Editor Fred Gabriel talks to reporter Ryan Neal about how college-savings strategies are more important than ever as tuition costs soar.

Latest news & opinion

New ways to pay for college

Experts respond to real-life scenarios of people struggling to afford higher education.

How technology is reshaping the advice business

Artificial intelligence, Amazon and robo-advisers are some of the topics on the minds of tech experts.

Best- and worst-performing sector funds and ETFs this year

A rising tide may lift all ships, but a bull market doesn't lift all stock sectors. Here are the best- and worst-performing sectors this year, with the top and bottom fund in each sector.

Betterment slapped with $400,000 fine from Finra

Robo-adviser cited for violating customer protection rule and not maintaining its books and records correctly.

Supreme Court ruling on SEC judges unlikely to upend advice industry

But it could give rise to new hearings for some advisers who are already in litigation with the agency such as Dawn Bennett.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print