Tue, Sep 30, 2014
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. Socially responsible investments grow in demand, but performance questions persist[more]

    Komfie Manalo, Opalesque Asia: A study by financial services firm TIAA-CREF showed that interest in socially responsible investing (SRI) is increasing rapidly, but investors are still asking if investing in an SRI strategy

  2. Outlook - Julian Robertson: There are two bubbles that can bite us[more]

    From Businessinsider.com: Legendary hedge fund manager Julian Robertson gave a warning about two bubbles that could "bite us" at Bloomberg Market's Most Influential Summit. "I agree with the fact that the economy is definitely getting better. I think the cause of that is two bubbles that will

  3. Manager Profile: Leon Cooperman: The stock market is 'fairly valued,' but the bond market is 'overvalued'[more]

    From Businessinsider.com: Leon Cooperman of Omega Advisors and Howard Marks of Oaktree just finished a panel at Bloomberg's Most Influential Summit. Bloomberg TV's Stephanie Ruhle was the moderator. The two titans, who have known each other for 40 years, spoke about the market and the state of

  4. North America - Some newly registered U.S. hedge fund advisers are ‘cherrypicking’[more]

    From Reuters.com: Some newly registered U.S. hedge fund advisers are "cherry-picking" investments to showcase their performance and improperly changing how they value securities, an agency official said on Monday. Andrew Bowden, head of the SEC's Office of Compliance, Inspections and Examinati

  5. Regulatory - Ireland launches structure for passporting loan origination funds within EU[more]

    From Asiaasset.com: The Irish Funds Industry Association (IFIA) has introduced new loan origination capabilities that will offer Asian managers and investors a new structure under the European Union’s (EU’s) Alternative Investment Fund Managers Directive (AIFMD). The new structure will allow the mar