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New Managers August 2019

PERSPECTIVES: Hedge funds industry moves beyond '2 and 20' fee structure

 

As fund managers and investors focus on customisation and deeper partnerships to align interests, attention is no longer solely on fees. Results from a survey undertaken by AIMA and RSM show the classic ‘2 and 20' fee model is no longer the standard structure charged by the hedge fund industry. The survey shows a new average management fee of 1.3% of assets under management (AUM) and 1.4% for new funds launched in the past 12 months. Discussions with managers and investors during the research reveal a shared belief that managers' share of profit should be about one third. Findings demonstrate that a maturing industry and institutional investor base now require hedge funds to deliver customised solutions, closer collaboration and closer communication. Over half of surveyed managers now use customised investment solutions, and the survey suggests that managers who can respond to individual investor needs are best positioned to grow. The importance of customisation is a significant development from the findings of AIMA's 2016 ‘In Concert' survey, which suggested fees and fund structures structures were then the focus of efforts to align interests. Other key findings: Over 75% of managers see a mutual desire for a longterm investment commitment or an exchange of knowledge with investors as essential. The importance of ‘skin in the game' to demonstrate partnership was confirmed by 76% of surveyed managers, who revealed they have significant personal capital invested in their funds.

Nearly all respondents have a performance fee highwater mark with their investors and almost 40% use hurdle rates to set a minimum return for client(s) before a performance fee can be charged. Nearly 80% of managers would reduce management fees in return for a greater share of performance.

Jack Inglis, AIMA CEO, commented: "Hedge fund managers are being responsive to investor requirements. The results of our survey reflect an ability to partner with inv......................

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