I don’t even know what industry reimburses fees or pays to work. If your plumber installed a hot water heater that dies a year later, and it is still under warranty, does the plumber refund the initial install costs? no.

Does your broker refund you the commission if the trade doesn’t make money? no.

PE firms usually invest their own capital into the fund between 1-2%, sometimes up to 12%.

The more institutional investors grind on fees, Private equity is about 28-38% away from just excluding all investors, and keeping 100% of the profit, instead of a measly 20% after they guarantee you a specific pre-agreed rate of return (hurdle rate) and giving back the fees they charged during the fund life.

Not a bad deal, especially when you consider all the work that goes into it.

As per the “Expenses are one of the few variables investors can control” it is correct- but there is also a huge cost to do nothing with the capital. Do you really want some outsourced 12 yr old analyst in india working for pennies, managing your money- because there is no margin in being a fiduciary?

I personally like real estate for higher returns, but “alternative assets” like real estate are clearly not the only path to higher yields:

http://www.nytimes.com/2012/04/02/business/pension-funds-making-alternative-bets-struggle-to-keep-up.html?_r=1

Bottom line: Fees matter.

The going rate for commission on alternative assets- real estate is 10% and 2% yearly fees for a 10% yield PA.
this “no fee, fee” FOF fund at 4.35% PA (21.75% over 5 yrs) is more than the above.

If you don’t’ want to pay fees, invest yourself (which still has costs) or keep it under the bed.

A FOF idea is even worse.

Like anything there are good and bad private reits. Once a private Reit does an full GAAP or IFRS audit- 1st one goes back 3yrs, figure 50-100k a year for pricing at any of the big accounting firms, then continues to do a yearly audit (50-100k depending on structure) and submits them to the SEC or Sedar (Canada), couple that with a bond rating (25k-40k yr), these private REITS are just a good or better disclosure wise as public reits. Without the added costs of going public.

Its stock and standard practice to charge investors for the costs of the offering, and for the ongoing admin- be it mutual fund, REIT, Private equity, hedge funds, or any other alternative investment. They all have fees, if there are no fees- you can bet the returns stink because there is no mgr. running the fund.

The FoF can make a splashy double digit distro but the 10% is always smaller than going direct. This is a great marketing article for Versus.