A growing number of institutional investors, including Texas Teachers and Erlen Capital, are pushing back against the rising cost of investing in multi-strategy hedge funds, with concerns mounting over passthrough fees that erode net returns, according to a report by Bloomberg.

Allocators are setting stricter thresholds on fees, with some refusing to back managers unless they can retain at least 60–70% of gross performance.

Passthrough charges – covering everything from rent and travel to compensation for portfolio managers – come on top of traditional two-and-20 arrangements and have ballooned in recent years. Data from BNP Paribas shows investors in 2023 kept just 41 cents of every dollar earned by multi-strat funds, down from 54 cents in 2021. Bloomberg data indicates fee disclosures at leading pod shops – including Millennium Management, Citadel, Point72, Balyasny and ExodusPoint – have increased by almost 40% over seven years.

Returns have also disappointed with Citadel and Millennium posting only 2.5% and 2.2% gains respectively in H1 2025, amplifying frustrations over high costs.

The pushback follows an investor-led coalition, spearheaded by Texas Teachers, calling for performance fees to be charged only on returns exceeding cash benchmarks. That group has now grown to more than 60 global asset owners, with nearly three-quarters of Texas Teachers’ hedge fund managers now subject to cash hurdles.