This is thoughtful analysis, but it assumes the key decision-maker is the end investor optimizing for return and diversification. But that’s not how capital actually gets allocated.

The authors rule out performance and risk as explanations and settle on diversification scarcity. But there’s a fourth explanation that isn’t explored: incentives within the investment supply chain.

Consultants, asset managers, and fund managers are not optimizing for investor outcomes alone. They are also optimizing for business stability, product viability, and career risk. In that respect, complexity and narrative can sustain high fees even when measurable benefits are weak.

The persistence of high fees in alternatives may say less about the scarcity of uncorrelated returns and more about the incentives of the system recommending them.