TOLEDO, Ohio -- Just as it takes money to make money, it took more than $700,000 in management fees for the Ohio Bureau of Workers' Compensation to eventually lose $215 million in a Bermuda hedge fund, according to bureau records.

The fees were charged by Pittsburgh-based MDL Capital Management, which persuaded Terrence Gasper, then the chief financial officer of the Ohio agency, in September 2003 to transfer $100 million from a separate MDL investment into its offshore hedge fund, the active duration fund.

MDL's fees jumped by 50 percent during the next three quarters to $469,053 from $312,863 during the previous three quarters, and the bureau invested an additional $125 million in the fund. The fees began dropping as the fund lost money because of an unsuccessful bet that interest rates for long-term U.S. Treasury bonds would increase.

During the course of eight years, MDL received a total of $1.97 million in fees.

While MDL has stated that the hedge fund existed to protect other outside bureau investments, the fund's payment structure would have rewarded MDL with record fees if their strategy had worked.

The terms of the contract stated that MDL would receive 1 percent of the hedge fund's assets each year, roughly $2.25 million. MDL would also be given 20 percent of any profits generated by the hedge fund, though profits failed to materialize.

A $225 million investment in a separate fund managed by MDL would have paid MDL approximately $500,000 each year. However, there may be additional payments of which the bureau is unaware.

Like many hedge funds, MDL had an independent administrator, Olympia Capital, which calculates the net assets of 400 funds controlling $46 billion. Olympia Capital was paid directly from the hedge fund, said the firm's general counsel, Priscilla Murray Brown.

In addition to measuring the fund's returns, Olympia Capital also provided it with a Bermuda mailing address and two directors to its board. Both of these services allowed the hedge fund to incorporate in the British territory even though it was being managed from Western Pennsylvania.