Over the course of April to June 2009, Preqin conducted a survey of hedge fund managers in order to present a snapshot of the industry’s terms and conditions as they currently stand. Preqin’s survey was designed to assess how the current economic downturn had affected the terms of investment laid down by managers, and whether it had affected the composition of investors in the asset class. We surveyed both single manager fund managers and fund of funds managers across a wide variety of strategies and global regions. Our research report contains a brief summary of our findings specifically regarding fees.
Key findings include:
• Mean management fee currently stands at 1.63% and mean performance fee is 17.21%
• However, 7 in 10 hedge funds still maintain a performance fee of 20%, demonstrating that investors are still willing to reward the alpha generated by top hedge fund managers
• Distressed debt/event driven/special situations funds are commanding the highest fees
• Market neutral strategies/multi-strategy/fixed income arbitrage funds have on average the lowest fees
• European funds are charging, on average, higher fees than their US counterparts.
It is clear that the idea of the ‘2 and 20’ structure as the industry standard is becoming outdated. Fees which for years have conformed to the industry standard of ‘2 and 20’ are now being driven down as investors become more powerful in the manager/client relationship. US pension funds such as CalPERS and Utah Retirement System have been vocal in their belief that the hedge fund remittance structure needs to evolve and managers in response to these demands and those of other institutional investors are changing their fee structures. The troubles the industry faced last year has resulted in a significantly smaller universe of hedge funds, and those funds which are flexible in the terms they can offer their investors are the ones picking up the new investment now that assets are flowing back into hedge funds.
Preqin’s hedge fund institutional investor database is the most comprehensive source of information on institutional investors in hedge funds. Please click here to find out more.