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There is unrest in China. A key part of the population is up in arms—in open rebellion, some might say—protesting vigorously in defense of their rights. That’s right: Chinese hedge fund investors are fed up with the shady, unfairly self-enriching way the country’s managers charge incentive fees, and they’re not gonna take it anymore. Or, at least, they're gonna complain about it online.

An open letter by Michelle Wang to news portal Sina.com in July outlined some unorthodox ways in which many Chinese hedge funds collect performance fees, leaving the Beijing-based lawyer paying up for a money-losing investment. Firms including Shanghai Chongyang Assets Management Co., which manages more than 20 billion yuan, and Shanghai WuSheng Investment Management Partnership have since joined the debate along with hundreds of other users….

At the center of the controversy is the practice of taking some of the units an investor holds as fees, rather than the typical custom of charging a percentage (in dollar terms) of the investment return by lowering the net asset value of each unit held…. The method is particularly problematic due to the unusual frequency with which many hedge funds levy fees in China -- a single month of outperformance is all a manager needs to claim the units even if the investment is money losing over the longer run.

Hedge Fund Investors in China Revolt Over Performance Fees [Bloomberg]

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