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Alternative Market Briefing

Investors are forcing hedge fund managers to abandon '2 and 20’ fee model

Monday, September 09, 2013

Precy Dumlao, Opalesque Asia:

Dissatisfied investors are forcing many hedge fund managers to rethink and even completely abandon the traditional '2 and 20’ fee model, according to The Wall Street Journal.

Most hedge fund managers are now charging approximately 1.6% for annual management fee and 18% on profits, "according to industry surveys and interviews with industry executives." The difference in the percentage could translate to hundreds of millions of dollars as last year, the hedge fund industry took in about $50.5bn in management and performance fees, Hedge Fund Research (HFR) is reported as saying.

The pressure are coming mostly from pension funds and other institutional investors, which have billions of dollars into hedge fund portfolios.

Those who were forced to reduce their management and performance fees are hedge funds focused on stocks and commodities as these strategies have not been generating high returns lately, the report added.

One of these industry surveys came from Preqin, a research house, which recently showed that hedge funds that charge the highest fees achieved the best returns in four of the past six years (See Opalesque article here).

Amy Bensted, Head of Hedge Funds Products at Preqin said:......................

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