Matt Levine’s Money Stuff: Hedge Fund Charged Clients for Art

Pass-through fees

I write from time to time about the economic structure of modern multi-strategy “pod shop” hedge funds. Stereotypically a hedge fund invests its clients’ money and gives the clients the returns, after taking some fees — classically 2% of assets and 20% of returns — for itself. The modern pod shops are not like that. They charge “pass-through fees,” meaning that they invest their clients’ money, earn returns, pay their expenses out of the returns, pay their employees large performance-based bonuses out of the returns, and then give most of what’s left to the clients. The deal with the clients is not ...