We can’t help feeling that amongst the great fee debate sparked by the Cooper Review, some people are missing if not “the” point, at least one important factor: PERFORMANCE.

AFM’s E5 Model Portfolio for instance consists of five equity based funds which charge management fees of up to 2% and a performance fee (above a hurdle)of 20%. The net annualised performance, after fees, of these managers over the past 45 months has been close to +15% whilst the ASX has fallen at an annualised rate of over -5%.

Of course high fees can detract from investors’ returns, but fees should be considered as part of the overall return. It is all well and good to compare the effect of different fees on identical returns, without considering the performance of the underlying investment.

By all means debate, compare and consider fees, but don’t forget the effect of performance. There seems little point in selecting an investment with poor or negative returns just to save on fees.

A global survey of 50 institutions by research house Preqin has found significant shifts away from investing through fund of funds at the same time as their overall appetite for the hedge fund sector is increasing. 64% of the respondents made their first hedge fund investment though a fund of fund, but only 36% of those continue to do so.

The GFC and 2008 were obviously a turning points for the industry as the survey showed that 80% of respondents that have moved away from fund of funds did so in 2008 or after, presumably as a result of liquidity, performance or transparency.

Other key findings included:

• 64% of respondents entered the asset class through fund of funds investments, but only 36% of these continue to invest solely through funds of hedge funds.
• 36% of respondents that currently invest solely in funds of hedge funds plan to move towards direct hedge funds in the future.
• 60% of respondents cited the extra layer of fees as the main reason they moved away from funds of hedge funds.
• Greater control over their investments (54%) and more in-house resources (13%) were other reasons cited for the move into direct investment.
• Public pension funds still invest heavily in funds of funds, with two thirds of public pension funds only investing through funds of hedge funds.
• Endowments and insurance companies are the largest investors in direct funds, with 66% and 50% respectively only investing in hedge funds directly.

ATTACHED FILESPreqin fund of fund survey (pdf format)

There will be no doubt be more to come from the Trio Capital saga and the liquidator's public examination of Shawn Richard, but how do you tell when he's telling the truth?

A: Probably never.

No doubt an enterprising journalist will one day write a book about the real story behind Shawn Richard, the Astarra Strategic Fund and Trio Capital, but whether it will be found in the fiction or non fiction section of the library is anyone's guess.

Uncovering the truth will take some doing simply because Richard's version of events, his past, his motives and his actions seem to depend on who's asking, and how he feels on the day. Although quick to claim privilege on day one of the liquidator's questioning, Richard has yet to use the "I can't recall" response, but it is only early days yet.

For a history of the debacle, try the Sydney Morning Herald's website here