[iav]

We had one investor who asked and got this kind of model. It creates a ton of complexity (say if the investor takes some money out, you don't count the gains that this money would have earned since that point. Then imagine they put more in later - now you have to track the hypothetical returns on that new money, but not from the original investment but from the add-on time. Trust me the math gets heavy). It just proves unworkable for a fund with hundreds of investors to track everyone's benchmarks separately. Then imagine trying to show net of fees returns for the fund for marketing purposes. Do you show the returns of the guy who invested when the benchmark was low and may not have paid any fees due to relative underperformance? Or the guy who invested at the optimal time and got the biggest outperformance and paid a lot more in fees relative to the first guy? Good luck justifying your choice to an SEC examiner. This is why even the savviest investors don't ask for what you are suggesting.

[SalvatoreDali]

This does not seem like a serious objection to me. Hedge funds track, keep track of far more complicated financial arrangements. Just valuing options to see when they are in the money is orders of magnitude more complicated. What the op suggests can be done using nothing more complicated than a spreadsheet. "It just proves unworkable for a fund with hundreds of investors to track everyone's benchmarks separately" - huh? Maybe 300 years ago when you had nothing but pen & paper. This is like saying it would be impossible for a mortgage issuer to keep track of each lenders current (adjustable) rate

[plinkplonk]

"It creates a ton of complexity (say if the investor takes some money out, you don't count the gains that this money would have earned since that point. Then imagine they put more in later - now you have to track the hypothetical returns on that new money, but not from the original investment but from the add-on time. Trust me the math gets heavy). It just proves unworkable for a fund with hundreds of investors to track everyone's benchmarks separately"

Computers are good for these kind of things. It isn't as if the hedgefund analyst has to use an abacus to calculate and record the data by hand inscribing stone tablets. I'm sure the existing procedures for other parts of the business (say valuing options) are equally or more complex and computers are handling them just fine.

[twic]

And if you really can't be bothered to keep track, restrict subscriptions and redemptions to the end of each quarter, and work out performance and fees quarter by quarter.