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Alternative Market Briefing

Hedge fund managers feeling the heat over fees - reports

Monday, April 29, 2013

From Precy Dumlao, Opalesque Asia – Maturing industry, changing investor base, financial crisis and regulations are adding pressures to hedge fund managers to rethink their "2 and 20" fee structure, according to a report by the Financial Times.

The traditional hedge fund investors, the wealthy individuals and private banks, have now been replaced by institutions which are more sophisticated and are questioning the fee structure due to regulatory and investment structure, Erich Schlaikjer, co-founder of $5bn quant fund Cantab Capital Partners, told the FT.

He was quoted as further saying, "Australian superannuation funds, as an example, are unable to pay the industry standard fees of two and 20. Investors are also used to paying less for scalable strategies; for example those investing in large-cap equities."

The report also quoted a recent study by Deutsche Bank which showed that 66% of pension funds raised their hedge fund portfolios last year, compared to just 19% of private banks, an indication that the trend would likely continue.

Last month, the U.S. Securities and Exchange Commission (SEC) announced it would scrutinize fees charged by hedge funds and other alternative investment managers that could further put pressure on hedge fund fees.

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