I've been thinking about what it takes for allocators to lower the fee burden charged by managers on the path to increasing net returns.

This what-Ted's thinking is called reducing fees.

Actions speak louder than words.

Last month, a group of 29 serious institutional investors sent out a proclamation

advocating for cash hurdles in hedge fund incentive fee arrangements.

Their logic is correct.

An asset manager should not receive performance compensation without adding value,

and higher interest rates provide a positive return for managers just for showing up.

But whether their bark will have any bite depends on their actions, not the words they write.

Let me share a few stories about attempted fee reductions in the past

that resulted in a wide range of outcomes. First, in 1994 and early 1995, the Fed hiked interest rates

seven times, and the Fed funds rate rose from 3% to 6%.

One institutional investor had the same thought as this group of 29 and discussed the

change in environment with each of its hedge fund managers.

The managers had different responses.

Some agreed and instituted a cost of capital hurdle.

Others agreed and changed their terms to have a similar economic effect,

like keeping the 20% incentive fee and eliminating the management fee,

and others did not change terms.

This investor responded by redeeming every manager who did not adjust fees. In doing so, its entire hedge fund

portfolio had a more favorable fee structure for the long term and performed better than others

over time. Next, 10 years ago, a group of institutional investors thought industry standard terms had gotten

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