However, while investors are demanding more transparency from hedge fund managers, they also expect hedge funds to cover the costs. More than two-thirds of managers pass on the cost of D&O insurance, as well as regulatory registration and compliance for the fund. However, over half of investors say it is unacceptable for managers to pass through the cost of D&O insurance, and about half say it is unacceptable for the costs of regulation to be passed on to the fund.Managers and investors also disagree on who should pay for functions like shadowing. While nearly 90% of hedge funds perform shadowing, and nearly all investors believe shadowing is critical to accurate valuation and reporting, only half of investors feel shadowing is worth the potential costs being passed to the funds. "There is still a disparity between the costs typically picked up by the funds and the costs that investors think they should cover," notes Tully. "However, we are encouraged to see greater alignment with regard to investments and where they should be made within the fund." Evolving funds of funds business model Investor support for emerging and start-up funds is increasing. But, there is an accompanying squeeze on margins, most notably from funds of funds, who are demanding and getting a variety of concessions from fund managers, particularly on fees (95%), and often in return for larger mandates (83%) and lock-ups (56%). Engineer concludes: "This flies in the face of conventional wisdom that the largest managers are gathering all the assets. More particularly, a significant majority of funds say that they are investing in a 'fund of one.' Both these trends attest to a thriving and continually reinvigorating industry. It is difficult to assess whether there is a causal relationship between this trend and a squeeze on margins, but there appears to be conclusive evidence that in each case, funds of funds, as investors, are demanding, and getting, a variety of concessions from fund managers."