A few pensions have broken new ground when it came to pressing hedge funds to be more transparent about their fees and other dealings. For several years now, CalPERS has been aiming to secure better terms with all alternative investment funds.

The massive pensions tells ai5000 that it's efforts are now showing fruit. "We've cut about $56 million in fees with hedge fund managers this year," a representative tells the magazine. "The bulk of fees cut this year--about $99 million (in total)--have been with hedge funds."

Of course not all pensions have the clout of CalPERS. But other funds have been active. A Utah public pension fund, for example, has asked hedge fund managers for 'claw-back' arrangements that permit investors to reclaim charges paid to funds that have underperformed sorely.

Lipper is encouraging its clients to take a harder line with funds, noting the standard 2 and 20 structure has given way. Fees are generally lower now. The average management fee for a single strategy fund was 1.58 percent. Lipper suggest the following 10 questions for hedge funds:

1. What is the performance fee rate, and does this apply to total returns, or just net returns above a benchmark?

2. Is there a fixed hurdle rate or other benchmark, above which performance fees can be collected?

3. Is there a high water mark and what is its duration?

4. Is there a 'claw-back' mechanism?

5. Is there an equalization system?

6. How often is the performance fee crystallized for payment?

7. Is there a cap on fees?

8. Is there a penalty for underperformance?

9. Is there a quid pro quo for lock-up arrangements, such as lower fees?

10. Is there a redemption penalty, and what is the redemption notice period?

Related Articles:
Looming crisis at public pensions
Big pensions sticking with hedge funds
A new era dawns at CalPERS
Florida pension faces tough choices to pay benefits