New York-based Caxton Associates, one of the world’s oldest and largest hedge funds, has reduced the management fee to 2.6 percent from 3 percent. The $7.5 billion hedge fund also trimmed the performance fee from 30 percent to 27.5 percent. Money managers charge performance fees when gains exceed a certain level.
The lowered rates are still much higher than the industry average- 2% management fee and 20 percent performance fee, the fee cuts show that even most respected money managers are trying to give investors a better deal amid strained economic conditions. The cuts will become effective from January 2013.
Caxton’s chairman and CEO, Andrew Law, acknowledged the muted performance of the firm in the September letter to investors. He said that the last two years have been challenging for Caxton’s macro trading style. Caxton would still command a higher fee because of its long-term track record of yielding better returns than most other hedge funds. For the past five years, its cumulative returns stand at 27 percent. During the 2008 crisis, hedge funds lost 19 percent on an average, but Caxton returned 13 percent to investors.
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However, Caxton’s returned have slowed in the past few years, according to Hedge Fund Research. Last year, it returned only 0.7 percent, though it was much better than fellow hedge funds, which were down 4.2 percent on average. Through September of this year, Caxton is down 3 percent, an investor said. Mr. Law said in his letter that the lowered fees would help Caxton strengthen its relationship with investors.
Gregg Hymowitz, the founder of New York-based hedge fund, EnTrust Capital, justified the rate cuts. He said if a fund is generating 15 percent gains and charging 2 percent management fee, that’s one thing. But if the fund is making 3 percent and wants 2 percent in management fees, that simply won’t work.
Caxton Associates was founded by Bruce Kovner and Peter D’Angelo in 1983. Last year, Kovner and D’Angelo both retired, and Andrew Law, then chief investment officer, took over as chairman and chief executive. Last year, Caxton closed itself to new investors, in order to size appropriately for the current markets.