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Alternative Market Briefing

Hedge fund fees on retail products come in for criticism

Tuesday, July 12, 2011

From Beverly Chandler, Opalesque London:

UK long only asset management firms that charge retail investors hedge fund type fees are facing a wall of complaint from fund brokers and analysts who claim that higher fees don’t necessarily equate with higher returns.

The news came last week that Standard Life Investments was to charge a higher management fee, particularly on absolute return type funds run by their in-house 'star’ managers and Henderson, owner of Gartmore, is increasing charges on its range of funds by up to 16%.

Some research has shown that funds with performance fees have higher than average costs, with PGWM reporting that close on 70% of funds with performance fees have total annual costs above 1.75% compared with the 1.56% average annual cost of a UK fund. The ban on open-ended funds charging performance fees was lifted in the UK in 2004 and are now a common feature of 'absolute return’ funds which use shorting of stocks in their portfolio management.

In their most recent study of the impact of performance fees on the performance of UK funds, fund research firm Lipper found that less than 5% of the UK fund industry charges performance fees. This study agreed that there was a general belief that 'absolute return’ type funds had higher costs but felt that there was room for improvement in regulating fee structures.

"Turning to the more distinctive side of a hedge fund fee structure, the performance fee, there is room for many fee st......................

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