Funds of Funds Could Face Reckoning on Fees

For investment advisers who place institutional money with hedge funds, it's been a rough autumn.

So-called "funds of funds" were up just 3.61% in the 10 months to Oct. 31, according to an index compiled by Hedge Fund Research. In October, they returned a negative 1.46%.

While not a terrible performance on a relative basis (the S&P 500 is up 1.67% so far this year), it could prove to be dangerous for a business that charges as much as this one. Funds of funds are said to be "double layered" in their fee structure. That is, they collect money from clients for arranging their portfolios, and pass along the already-stiff management levies assessed by the funds they select. ...