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Alternative Market Briefing

Hedge fund hurdle rates have not really changed significantly

Tuesday, August 23, 2016

amb
Steve Nadel
Benedicte Gravrand, Opalesque Geneva:

It was recently reported that hedge funds are agreeing to hurdle rates to alleviate the sting of underperformance, but several sources show that hurdle rates in the US have not increased, nor are there more hedge funds agreeing to include hurdle rates in their fee structure, even among new hedge funds.

The Financial Times reported recently on the increase of hurdle rates, citing Sir Chris Hohn’s $11bn The Children’s Investment Fund in London, which added hurdles about three years ago, and Parvus, which has had incentive fees for its long-only fund on European benchmarks since 2004. Also, investors such as Partners Capital, the Orange County Employees Retirement System and New Jersey’s pension have reportedly pushed for hurdles.

A hurdle rate is a type of benchmark indicating the minimum amount of profit a hedge fund must earn before it can charge an incentive (or performance) fee. Given that returns have not been stellar in the last few years, and that the market environment is not kind to investors, hedge funds are these days less likely to offer hurdle rates in their fee structure.

According to Preqin, an alternative investments research firm, the hedge funds that do have hurd......................

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