All the Fun Is Going Out of Hedge Funds

By now, almost every finance aficionado knows about the problems in the hedge-fund industry. With almost $3 trillion in assets under management, the industry has been bedeviled by complaints of underperformance and high fees. Large institutions that put money into hedge funds are now reversing course, led by endowments and pension funds. Redemptions totaled $20.7 billion in the three months through July, with $5.7 billion withdrawn by investors last month. As high-profile firms have suffered outflows, they have begun cutting employees.

Steve Eisman, profiled in Michael Lewis’s book “The Big Short,” says the next big short is hedge fund fees. Two and 20 -- industry parlance for a 2 percent management fee, plus 20 percent of any capital gains -- is leading to big investor defections. Amid the outflows, many fund managers are cutting those fees. Paul Tudor Jones told investors he would reduce fees by 10 percent; other funds are following suit.