Key Facts
• Investors protest opaque, high fees in hedge funds, citing unsustainable returns.
• Texas Teachers’ Retirement Fund manages $200 billion, New Mexico Public Employees Fund $17 billion.
• “Pass-through fees” transfer most expenses to investors, reaching billions of dollars.
• Standard fees: 20% of profits; additional 2% management fees may apply.
• New Mexico Fund avoids funds retaining less than 60% of profits; Texas considers 70% minimum.
• Multi-strategy funds underperformed in 2025, with net returns of 2.5% (Citadel) and 2.2% (Millennium).
• Top five multi-strategy funds increased pass-through expenses by 40% over seven years.
• In 2023, investors retained $0.41 per $1 profit, down from $0.54 in 2021.
• Over 60 funds signed a letter demanding performance-based fee reforms.
• Texas invests 10% of its portfolio in hedge funds; New Mexico allocates 5%.
Summary
Pension funds, including Texas Teachers’ Retirement Fund and New Mexico Public Employees Fund, are challenging hedge funds over excessive and opaque fees. These fees, particularly “pass-through fees,” shift operational costs to investors, significantly reducing net returns. In response, funds are setting stricter profit retention thresholds, with New Mexico requiring at least 60% and Texas considering 70%. Multi-strategy funds have struggled in 2025, delivering subpar returns after fees. A collective letter from over 60 funds demands reforms, including eliminating performance fees for underperforming funds. This pushback highlights growing investor frustration and a call for greater fee transparency and accountability.
