Comparing LASSO and Traditional Funds of Hedge Funds

LASSO offers a cost-effective structure in comparison to traditional funds of hedge funds.

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LASSO: Cost Comparison

LASSO fees and expenses compared to traditional hedge funds-of-funds.

Cost-Effective Structure:
LASSO versus Traditional Hedge Funds-of-Funds
Types of Expense LASSO: Alternative Mutual Funds Traditional Hedge Funds-of-Funds
Incentive Fees None Generally 30% (10% plus 20% for underlying)
Management Fees: Fund-of-Funds Level 1% Generally 1%
Underlying Fund Fees & Expenses Variable: Approximately 1.3% average weighted expense ratio plus short sale expense of approximately 0.5% = approximately 1.8% as of December 31, 2017 Generally 2% plus expenses
Other Expenses Limited (approximately 0.10% - 0.30%) Variable
Overall Fees and Expenses Approximately 3.0% "3 and 30" plus expenses

Understanding the Expense Ratio

The LASSO portfolio is structured as a diversified fund of funds with approximately 15 to 25 mutual funds, all of which use alternative or hedged strategies.

The total operating expenses for LASSO comprise two basic components:

  1. portfolio-level management fees and expenses
  2. the management fees and expenses of the underlying funds that make up the portfolio.

Regulation requires mutual funds to include dividends paid on short sales, and interest on borrowings, as part of their total fees and expenses. Mutual funds that engage in substantial short selling or that use leverage – like some of those that LASSO invests in – will tend to have what appear to be high expense ratios. Oddly, mutual funds that use derivatives – such as swaps – to obtain short exposure do not have to report their dividend expense or interest expense in their total expense ratio. We believe that this type of reporting inflates the expense ratios of some alternative mutual funds, making some look high in comparison to others.