Tuesday, March 31, 2009

Mutual Fund and Hedge Fund Fees, Comparable or Different?

In a October 6, 2008 Bloomberg piece, "Another Critique of Mutual Fund Fees: Coals to Newcastle," Dechert Counsel, David Geffen, takes a look at mutual fund fees through the lens of an Oklahoma Law Review article that claims that evidence demonstrates that "price gouging over portfolio management fees is a way of life in the fund industry." Both the Oklahoma Law Review article, and Geffen's article are timely and relevant against the backdrop of the Jones v. Harris Associates litigation (collectively "Jones I and Jones II"), which the Supreme Court has decided to review this year.

Jones I and Jones II both cite academic studies of mutual fund fees, and Judge Posner cites a 2001 study in which the authors of the Oklahoma Law Review article participated, and upon which the law review article builds. Geffen criticizes the Oklahoma Law review article’s methodology to reveal what he sees as a serious omission: the failure to include the advisory fees paid by institutional investors as investors in hedge funds in their discussion of comparables.

David Geffen and Bloomberg have made his article available to members of the Forum at: http://www.mfdf.com/members/documents/GeffenMutualFundFeesArticle.pdf (password required).