Five Myths About Fees

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This article examines five common and consequential misconceptions about investment management fees. Co-authored with Ronald N. Kahn and Laurence B. Siegel during Scanlan’s tenure as Managing Director at Barclays Global Investors, the piece addresses the appropriate level and structure of fees, the tradeoffs between fixed and incentive arrangements, the real value of high-water mark provisions, and the question of whether hedge funds justify their cost.

The authors’ central argument is that cost should not be the overriding criterion in manager selection. High fees are warranted — indeed rational — when a product delivers sufficiently high risk-adjusted returns net of fees. The article became one of the most widely read pieces in the Journal of Portfolio Management and received the 2007 Bernstein Fabozzi/Jacobs Levy Award for Best Article, voted by the journal’s readership.