Mon, Sep 26, 2016
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Alternative Market Briefing

Other Voices: Why fee reduction is the purest form of alpha

Thursday, November 07, 2013

amb
Andrew Beer
This article as authored by Andrew Beer, CEO of U.S.-based Beachhead Capital Management. You can access the full version by clicking on the link at the bottom.

In this note, we examine the relationship between the hedge fund fee structure and how it impacts alpha.

In the early days of the industry, higher management fees were designed to cover costs of a deep and rigorous research and investment process; performance fees were meant to reward the manager for alpha generation. The standard 2/20 fee structure made sense when hedge funds were smaller and either truly "hedged" – offsetting long and short positions and hence little market exposure – or focused on markets like commodities where beta alternatives were not obvious.

Over the past decade, several changes in the industry have drawn attention to the issue of whether the standard hedge fund fee structure is equitable. Today, a good portion of the industry – event driven, equity long/short – has consistent and identifiable exposure to equity market beta; likewise, as we’ve gained a more comprehensive understanding of hedge fund performance, it has become clear that more diverse forms of beta explain the majority of returns. This raises the question of whether investors are overpaying for sources of return that can be obtained more cheaply and efficiently elsewhere. Finally, the concentration of capital among larger fund......................

To view our full article Click here

Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. North America - Acela fight splits hedge fund Connecticut and old money enclaves[more]

    From Bloomberg.com: Connecticut’s residential coastline is two worlds, the one of newcomer millionaires and one whose wealth and New England roots span generations. Now, their differences over a rail route threaten to gum up plans for the U.S. Northeast’s fastest-ever trains. About 30 miles from Man

  2. Activist News - Caesars offers creditors another $1.6bn, would spell end of hedge fund ownership, Activist investors double chance of CEO exits[more]

    Caesars offers creditors another $1.6bn, would spell end of hedge fund ownership From Calvinayre.com: Casino operator Caesars Entertainment has improved its offer to junior creditors to over $5b, but the offer is only good until Friday. On Wednesday, Caesars added an extra $1.6b to the $

  3. Opalesque Exclusive: Modern investor tools (2): A platform that does the job for you[more]

    Benedicte Gravrand, Opalesque Geneva: A new series on technology providers that assist asset allocators. There is disruption in the investor part of the world of hedge funds, coming from platforms that can replace traditionally-run search and analysis. Here is one of them. L

  4. Hedge funds saw four consecutive months of outflows in August, but assets still up by $17.6bn YTD[more]

    Komfie Manalo, Opalesque Asia: Hedge funds witnessed four consecutive months of outflows with investor redemptions totaling $23.8bn as of end of August, data provider Eurekahedge said in its monthly report. But total hedge fund assets grew by

  5. Trend reversals lead to losses as managed futures drops 1.52% in August[more]

    Komfie Manalo, Opalesque Asia: Trend reversals in August have led managed futures traders to lose 1.52% last month according to the Barclay CTA Index compiled by BarclayHedge. The Index is up 0.62% year to dat