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Asia-Pacific-Based Hedge Funds: Evolution of Fee Structures

by Angela Li

  • 25 Apr 2017
  • HF

Preqin’s Hedge Fund Online tracks more than 20,000 hedge funds globally, of which 3,264 have been launched by Asia-Pacific-based (APAC-based) managers. According to Preqin’s Asia-Pacific: Outlook for Hedge Funds, 51% of fund managers surveyed by Preqin in November 2016 headquartered in the region regard investors’ outlook on fees as one of the key drivers of change for the industry in 2017. As APAC has generally been associated with sluggish responses to changes in fund structures, we explore how fees have evolved in this part of the world.

Differing Trends for Average Management Fees

As illustrated in Fig. 1, mean management fees charged by hedge fund managers based in APAC have generally increased since 2011, reaching a high of 1.69% in 2015 before dipping to 1.60% in 2016. In contrast, global average management fees have declined steadily from 1.62% in 2011 to 1.51% in 2016.

Lower Average Performance Fees

While charging higher management fees in recent times, APAC-based firms have been charging significantly lower performance fees compared to the global average across all years examined. The mean APAC-based performance fee charged was 18.03% in 2016, compared with the 19.48% industry average.

Outlook

In today’s highly competitive hedge fund industry, it is imperative for managers to adapt quickly and offer greater flexibility regarding fee structures. Even large hedge fund managers are cutting their fees – Hong Kong-based Value Partners charges a 1.25% management fee and 15.00% performance fee on the majority of its funds.

In Q1 2017, APAC-based hedge funds achieved returns of +4.55%, outperforming the Preqin All-Strategies Hedge Fund benchmark (+3.21%). If the region continues to outperform, investors may potentially be less inclined to scrutinize fees. However, with 2016’s underperformance fresh in investors’ minds, it is likely that hedge fund managers headquartered in APAC will continue to adjust fees this year; 56% of survey respondents located in APAC plan to reduce at least one type of fees in 2017.

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