From the page on the OpalesqueTV youtube channel. This is video from 2010, but I thought it still carries relevance and long-term logic:
Opalesque’s first CAMPUS series features Melvyn Teo, Associate Professor of Finance at Singapore Management University. Teo is also Director of the BNP Paribas Hedge Fund Centre at the Singapore Management University.
In this Opalesque CAMPUS, Teo shares his findings that hedge funds charging lower than average performance fees tend to have a higher liquidity risk, which will translate into problems for investors, when they try to pull money out of the fund. One example of such a problem is the “return impact” of redemptions, when the return of the fund tends to fall in the next month.
Teo also gives specific recommendations what investors can do to better understand the liquidity risk a fund may carry.