Sackler family makes $100M bet on low hedge fund fees

Choosing to manage hedge funds over mutual funds

The promise of fast-growing alternative mutual funds is a hedge fund investor's dream: high returns and loss protection without paying exorbitantly high fees, locking up capital for a year or more, and barely understanding what the manager is buying and selling.

Still, a stigma has been attached to the funds, which either replicate hedge fund strategies or allocate to a group of hedge fund managers.

Why would a hotshot firm take public money for a fee of just 2 or 3 percent when it can also charge a performance fee of 20 percent in the private market?

That perception of negative selection bias got a stiff rejection last week, when a large family office well-versed in hedge fund investing pulled about half of its cash—$100 million—from its stable of equity hedge managers and put it in a new alternative mutual fund for a minimum of seven years.