“Modern fee structures for hedge funds are 2% annual, plus an incentive fee of 20% of profits, often without a hurdle rate. Buffett famously said hedge funds are “a compensation scheme dressed up as an asset class”.

“But Ben Graham's fee structure of a hurdle of +6% and then incentive fees of 20%, and rising for incremental returns, is a fair compensation scheme. Indeed, it might even be a good marker for our well-fed industry.

“First, performance under +6% receives no fees. So the manager is not rewarded for “failure”, unlike today.

“Second, trend performance of about +10% -the long run return on stocks- produces fees of 0.8% (10-6 x 20%), far less than today's norm.

“Third, it is only when Graham achieved >20% returns (example: 20–6 x 20% = 2.8%) that Graham's comp approached today's luxuriant fee fest.

“The asset management industry has better economics than any industry I know of. Margins are literally infinite. Adding incremental capital to AUM requires little, if any, incremental cost. What's more, the “ad valorem” system of basing fees upon a percentage of managed capital is a convention that often belies the fact that little incremental labour or extra cost is required to manage that additional capital.

“The good news for investors is that the trend for fees in our industry is down . There will of course be “ hold-outs” but, luckily for investors, they will increasingly be perceived as “hold-ups” .

“Best wishes and keep up the superb work"

“Ps.......Would any of your readers like to join our informal campaign for more transparency and lower fees in our over-fed industry? All of your subscribers are paying fees to advisers, either through their pension pots or their investment accounts, and often fees they don't know about. Bruce Albrecht and I are founding a community on the web that will deal with the subject of fees etc. The object quite simply is to empower today's investor. In particular we will also discuss funds which fail to be transparent or which fail to provide a square deal to investors. We know we will make few friends in the fund management industry but at this stage in our careers, this holds little fear.”

Eoin Treacy's view Thank you for taking the time to elucidate your thoughts on this important subject which I have no doubt will be of interest to subscribers. We believe your aim of proactively questioning fees is a laudable one.