Faced With Buyers Market, Hedge Funds Negotiate Fee Structures

A comment from InfraHedge CEO Andrew Allright, looking at today’s announcement from AIMA on changing fee structures in the hedge fund space:

Fee Structures

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Q2 hedge fund letters, conference, scoops etc

"At the larger and of the market, where we typically operate, we haven’t seen the standard two and twenty being charged for years. Post-financial crisis, the bigger asset owners quickly recognised that if they were going to continue allocating to hedge funds, they were in a much stronger position to negotiate fees. Fast-forward another couple of years and this trend had gathered momentum due to the mutual advantages – lower fees in exchange for institutional investment, longer-term commitment and a partnership approach. Over time we’ve also seen this fee pressure propagate through the entire market. Lower fees, as well as customized fee structures and mandates are very much the norm now."

InfraHedge is the $35bn managed accounts services provider from State Street, working with the largest asset owners around the world to establish and oversee their hedge fund programmes.

My comment - it seems that the days of 2/20 are over as 1 and 15 seems to be much more than norm nowadays. Furthermore, some funds are even doing away with the management fee altogether and charging  just a performance fee sometimes to the tune of 0 and 25%. However, for the top funds fees are still high as they can justify the costs (at least sometimes). With the rise of ETFs and the subpar performance it is hard for 10,000 funds to justify charging such exorbanat fees to investors especially as pension funds try to cut costs.

What do you think about the future? I think 0 and 25% or whatever makes a lot more sense (although makes it tough for smaller funds). Let us know what you think in the comments section.




About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and three kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own 2.5 grams of Gold