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AOI's Hedge Fund Fees guidance was developed by a committee comprised of leading institutional investors in hedge funds, including pensions, foundations and endowments, and consultants for investors in the space. The organization said AOI's members continue to see merit in investing in hedge funds, but not without more significant changes to the traditional fee model than simply a discounted rate.

The paper is a result of many AOI meetings in which investor-to-investor idea sharing has contributed to better alignment between managers and investors. It is the only paper on the subject that has been published solely from the investors' point of view, by investors. It does not seek to be prescriptive, but to provide considerations on various structures by providing examples and guidance on what has been working for both sides.

Key conclusions include:

• The 'shape' of fees matters more than any individual rate
• Greater transparency and innovation around the structure of fees can lead to better and potentially longer-term relationships
• New structures are being implemented and deserve consideration
• Total share of performance or alpha is an important paradigm to use when considering the level of fees
• Investors and managers are best suited to solve these issues "ahead of time" and it is important for investors of all types and sizes to "row together", particularly as a fund's strategy is typically open-ended

Sharmila Kassam, Deputy CIO of Employees Retirement System of Texas commented, "As GP and LP relationships continue to evolve, discussions on fees are part of that evolution and part of the institutionalization of the industry. AOI's guidance serves as a thoughtful conduit to the various alternatives that exist when it comes to the construction of fee-driven relationships. Although there is no "one size fits all" solution, this white paper provides all key stakeholders with some ideas on the variety of options that exist and may work for them and their respective investment programs."

Robert Lee Deputy CIO of Texas Tech University added, "Alpha exists. And it should be rewarded handsomely. Beta however, often masquerading as alpha, is today a commoditized exposure. Beta should be cheap. Institutional investors, as evidenced by their often granular asset allocations, are more able to distinguish alpha from beta. Fee structures that better align the manager and the allocator are necessary, and this study highlights several solutions to that end."

Since 2009, AOI has worked to advance the level of communication between institutional hedge fund investors, by facilitating the sharing of ideas on ways to improve the industry for the long-term benefit of all its participants. Its mission is to foster investor collaboration, provide an independent forum for the exchange of ideas and contribute to the sharing of educational resources among investors. AOI's participation is generally limited to investors, allowing its members to approach issues from their shared perspective. This paper reflects AOI's continuing goal of extending the discussion that started with the release of the AOI Principles in December 2014.