Sun, Dec 4, 2016
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
New Managers June 2014

GUEST ARTICLE: The hedge fund fee conundrum

Andrew Beer

This article was authored by Andrew Beer, founder of Beachhead Capital Management LLC in New York.

By one estimate, the hedge fund industry managed $2.6 trillion in capital at year-end 2013. Many expect growth to accelerate over the coming five years as institutional investors like US pension funds seek alternatives to investing in low yielding fixed income assets. Deutsche Bank, for example, predicts that industry assets will grow by another $400 billion this year alone.

This growth comes in the face of widespread discontent about the cost of investing in hedge funds. In the pre-crisis period, when hedge funds routinely outperformed traditional assets, the cost of investing was largely overlooked. In recent years, though, as the average hedge fund delivered single digit returns, high fees increasingly have come under scrutiny. To put the issue in context, investors paid approximately $95 billion in fees in 2013, or 44% of what their investors took home. By our estimate, this figure is twice what it should be: in other words, investors overpaid by a staggering $47 billion. The same conclusion can be drawn for each year since the financial crisis.

Why is this? In the post-crisis period, institutional investors and their consultants partially brought down the cost of investing by "dis-intermediating" funds of hedge funds - in essence, cutting out the middleman. However, this represented only a small percentage of overall fees. Driven in part by risk aversion (you don't get fired for hiring IBM), those same investors instead steered capital directly to the largest hedge funds - the $10 billion plus firms you read about in the press. By some estimates, 100% of net capital inflows post-crisis went to the top 100 man......................

To view our full article please login

This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.
New Managers
New Managers
New Managers

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. M&A - AllianzGI to acquire Sound Harbor Partners, SS&C completes acquisition of Wells Fargo's Global Fund Services business[more]

    AllianzGI to acquire Sound Harbor Partners Allianz Global Investors (AllianzGI), an active investment manager, announced that Sound Harbor Partners, a US private credit manager led by Michael Zupon and Dean Criares, have agreed to join its fast-growing Private Debt Platform. Under the te

  2. People - Nectar Financial hires senior investment team, Texas A&M replaces retiring foundation investment chief, Ex-Cadwalader partner Woolery makes another sudden exit, How to become a Python coder at a top hedge fund, by the co-CTO of Man AHL[more]

    Nectar Financial hires senior investment team Nectar Financial AG, a Swiss financial technology company for wealth and asset management, has announced that it has hired two key senior leaders to spearhead its digital asset management efforts. The company also announced that it has entere

  3. Activist News - Cognizant has introductory discussion with activist investor Elliott; to review letter, Starboard Value makes huge investment in Hewlett Packard, Hedge fund calls for removal of First NBC Bank CEO[more]

    Cognizant has introductory discussion with activist investor Elliott; to review letter From Indiatimes.com: Cognizant said it had an introductory discussion with Elliott Management after receiving the activist hedge fund's letter asking for a board shakeup, a buyback, a dividend and chan

  4. Opalesque Exclusive: Ireland relaxes treatment of direct lending funds[more]

    Bailey McCann, Opalesque New York: The Irish Central Bank has relaxed its treatment of direct lending funds, according to a recently released

  5. Hedge funds gain on Trump market rally, positive U.S. data[more]

    Komfie Manalo, Opalesque Asia: Hedge funds enjoyed meaningful returns in the week ending November 22, with the Lyxor Hedge Fund Index moving up 0.7% over the period (-1.6% YTD). From a broad perspective, all strategies ended the week on a positive note except for CTAs that ended flat. Event d