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Alternative Market Briefing

Preqin reveals hedge funds with highest fees achieve best net returns

Friday, August 30, 2013

amb
Amy Bensted
Beverly Chandler, Opalesque London:

Hedge funds with highest performance fees deliver best net returns reveals new research from Preqin. The firm found that hedge funds that charge performance fees of more than 20% have produced the highest net returns in four out of the past six years. Preqin’s data shows hedge funds with at least a three- year track record that have posted positive returns each month since inception charge an average performance fee of 19.50%.

Funds with positive performance in less than a quarter of the months studied charged an average performance fee of 16.67%.

Other key facts from the study include:

  • Funds with the highest fees show the best long-term net absolute returns for their investors
  • Hedge funds which charge higher performance fees have produced the highest net returns for investors on a three- and five-year annualized basis.
  • Funds with fees over 20% have also produced the strongest risk adjusted net returns – with a Sharpe-ratio (2%) of 2.11 over a three-year period (compared to 1.18 of funds with a performance fee of 20%). Despite this investors are still seeking further alignment of interests and are continuing to negotiate fees
  • The proportion of investors that believe fund manager and investor interests are properly aligned at present has fallen to 64%, compared to 74% in 2012.
  • Management and performance fees are mos......................

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