A new report by hedge fund operational due diligence firm Castle Hall Alternatives is putting into question a number of the industry’s standards.

For example, the report asks whether the typical “2 and 20” fee structure is fundamentally flawed; whether hedge funds need better corporate governance; and whether there is an “expectations gap” in the fund administration industry. The report also questions whether the fund prospectus should be written to protect the manager or the investor and asks if it is possible to hold illiquid assets in an open-ended vehicle.

Chris Addy, Castle Hall's CEO, said the credit crisis and market events over the past year have challenged the hedge fund industry as never before.

“Alternative investments will remain integral to diversified, institutional portfolios, but there will unavoidably be a re-evaluation of the hedge fund model,” he offered. “The structures and conventions accepted in the past may not be the best for the hedge fund industry going forward.”