As institutional money increasingly flows into ETFs, market watcjers are beginning to question whether the high fees charged by hedge fund managers are still justifiable.

A tweet by Corey Hoffstein highlighted that the Simplify Market Neutral Equity Long Short ETF (NYSE:EQLS) (expense ratio = 1%) recently bagged $104 million from General Electric’s pension fund. Earlier, Michigan’s pension fund had also put in $364 million in another of Simplify’s ETFs.

Given the state of the mortgage market, Simplify has recently launched its Simplify MBS ETF (NYSE:MTBA) investing in mortgage-backed securities (MBS), as reported by Bloomberg. The fund seeks to provide attractive yields versus comparable U.S. Treasuries while carrying little to no credit risk.

Simplify’s website states that their ETF strategies are designed to “efficiently hedge portfolios against rising interest rates, generate risk-managed income, gain exposure to alternatives.” Through their institutional-grade alternative investment strategies, Simplify is offering investors a low-cost and transparent investment vehicle, as compared to investing in hedge funds.

Another ETF that mimics a hedge fund, the iMGP DBi Managed Futures Strategy ETF (NYSE:DBMF) (ER= 0.85%) “seeks to replicate the pre-fee performance of leading managed futures hedge funds and outperform through fee/expense disintermediation.” The ETF is part of the iMGP Funds portfolio.

DBMF began in 2022 with just $60 million in assets, but now boasts more than $834 billion in assets under management. Along the same lines, the First Trust Managed Futures Strategy ETF (NYSE:FMF) (ER = 0.95%) with $162 million in assets, and the Simplify Managed Futures Strategy ETF (NYSE:CTA) (ER = 0.78%) with $159 million AUM are all attracting institutional money now.

The KFA Mount Lucas Managed Futures Index Strategy ETF (NYSE:KMLM) (ER = 0.90%) is another hedge fund strategy mimicking investment vehicle which has been quick to garner $295 million in AUM. The WisdomTree Managed Futures Strategy Fund (NYSE:WTMF) (ER=0.65%) is yet another example.

A key reason for the influx of institutional funds into these ETFs is hedge fund fees. Hedge funds typically charge 2% of the fund’s net asset value as a management fee, along with a performance fee of 20% of the fund’s profit. Given that strategy-mimicking ETFs charge less than 1% in fees, it’s conceivable that investor sentiment might drive these fees even lower.

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Hedge Fund Strategies Are Getting ETF-ed: Are Lower Fees Inevitable?