Institutional investors are becoming increasingly disillusioned on the subject of hedge fund fees. Over the course of 2009, several prominent hedge fund investors (notably CalPERS) have publicly called on hedge fund managers to reduce their management and performance fees, making the reduction of hedge fund fees a buzz topic in 2009. Today, just 24% of institutional investors feel that hedge fund fees at their current level are justified. Approximately 60% of institutional investors feel that hedge fund fees are too high, with a further 17% of investors surveyed stating that although fees are coming down, they remain too high. Institutional investors are becoming more aware of their power to negotiate fees and are increasingly using this power to drive fees down. When Preqin asked institutional investors whether they have tried to negotiate better terms with their hedge fund managers, we found approximately half of all investors surveyed have tried to negotiate the management and performance fees associated with their hedge fund investments, with 62% of those investors attempting negotiations being successful. A further 22% of institutional investors are considering approaching negotiations with hedge fund managers to reduce the fees charged on their funds. As more investors continue to negotiate the terms associated with their hedge funds, we can expect there to be a further consolidation of fees at a level below the standard “2&20” that has been the industry norm for years.
For more information on investors in hedge funds, please see Preqin’s Hedge Investor Profile product.