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Kevin Maloney Komfie Manalo, Opalesque Asia: "Investors are willing to pay for alpha, but they have no idea how to measure it," said Kevin Maloney, CIO at Gottex Fund Management, a fund of funds firm, on the subject of the hedge fund fee structure. "As a result, they end up evaluating total return. The easiest thing for hedge fund managers to do with their incentive fees is to put it on total return, while for the investors, the better deal would be to have a structure that rewards alpha as opposed to total return. But that’s a very hard thing to do."
Maloney made the remarks at the latest at Boston Opalesque Roundtable.
"Another issue is that everybody thinks that high watermarks are good things for investors, but in reality they are options for fund managers," Maloney said and added, "Unless they have claw back mechanisms when you are below the high water mark. It’s very hard to structure something that is simple, explainable, and that creates the right incentives. The industry has always struggled with balancing the correct incentives versus simplicity of the calculation."
Gottex has negotiated fees with investors and with funds in exchange for chunks of capital, he explains. Fees often have complex structures, so that can only do that in a separate account.
According to Maloney, the standard hedge fund fee structure has not delivered the r...................... To view our full article Click here
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