A new hedge fund, combining systematic and discretionary trading methods, is also launching a simple flat fee structure to boot.
Former Bridgewater traders discuss management fees
Convoy Investments, LLC, launched by Howard Wang, a former Bridgewater Associates analyst, and Robert Wu, who worked in the technology department at the same uncorrelated investment hedge fund, will charge a flat rate management fee of 1.25 percent and will not charge a performance fee.
While it is common for hedge funds to charge a 2 percent management fee and take close to 20 percent of the trading profits, hedge funds across the board have generally had difficulty raising assets, particularly newer algorithmic hedge funds whose track records have not been tested through a variety of market environments.
The new fee arrangement, while unusual for a traditional hedge fund, falls in line with certain algorithmic mutual funds and ETFs who only charge a management fee on assets traded. While certain algorithmic funds have been reported to charge fees in excess of 4 percent, other funds charge lower rates because their ongoing investment in human research staff can allow for such fee reductions.
Simon Lack on managers who deserve fees
“It’s refreshingly honest,” Simon Lack, founder of investment firm SL Advisors and the author of The Hedge Fund Mirage: The Illusion of Big Money and Why It’s Too Good to Be True, was quoted as saying in a Bloomberg report. “There’s some really talented people who do a good job and earn the fees they get, but across the industry there’s a lot of funds that charge fees they probably don’t deserve.”
Convoy is extending his fee offer to non-profits and under-funded pension funds. The firm will work pro-bono to manage up to 25 percent of their fund assets. However, seldom would a pension fund or foundation delegate more than 25 percent of their exposure to any one trader, particularly a new hedge fund. It is unclear if there is an expiration date on this offer.
Ray Dalio’s Bridgewater Associates is one of the most successful hedge funds in the world. Its uncorrelated investment strategy combines a variety of strategies, some quantitative, relative value, trend following, and some discretionary based on more traditional investment methods.