Alternative investment fund managers typically charge a higher annual management fee than traditional funds to cover the cost of specialized investment teams, due diligence, complex legal structures, and monitoring illiquid assets. 

Many alternative investment funds have performance fees (carry), for example a percentage of profits above a certain threshold (hurdle rate). In theory, this aligns the interests of the manager with those of the investor, but it can also create incentives to take on additional risk if the structure is not well thought out. 

• Transaction and operating costs. Investments in illiquid assets require legal, tax, and technical due diligence (especially for real estate, infrastructure, and loans). There are consulting, valuation, audit, custody, and reporting costs, which are borne by the fund and, therefore, indirectly by the investor. 
• Structuring and financing costs. Funds that use leverage (loans at the fund or investment vehicle level) incur interest and financing arrangement costs. These increase risk, but can also amplify returns—it is important to see how much leverage the fund uses.