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Vikas Agarwal By Beverly Chandler, Opalesque London:

In their recent research paper. Determinants and Implications of Fee Changes in the Hedge Fund industry, Vikas Agarwal of Georgia State University and Sugata Ray of the University of Florida noted that other studies of the impact of hedge fund fees on performance assumed that fees were constant.

Agarwal and Ray observed that this was often far from the case, as hedge fund managers regularly changed their methodology on management and performance fees and high water marks as their funds matured. As reported in the Edhec Risk research news, the pair managed to obtain unique historical data on changes in the hedge fund fee structure including changes in fees and high water marks between April 2008 and November 2010, enabling them to ask a number of questions.

Firstly, they asked what were the determinants of fee changes? "Are there specific determinants for changes in the various components of the hedge fund fee structure, namely management fees, incentive fees, and the high-water mark provision? How do these changes relate to each other and to a fund’s past performance, flows, and other characteristics?"

They then looked at what were the effects of changes in the hedge fund fee structure on future performance, risk-taking behaviour and capital flows from investors.

Answers to the first question, what determines a change of fee charging structure within a hedge fund, produced four key answers. Firstly, the a......................

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