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Hedge Funds Charging The Highest Performance Fees Generated The Best Returns Through The Market Crisis

by Amy Bensted

  • 15 Apr 2010
  • HF

A recent Preqin survey of 900 funds and funds of funds has revealed that the issue of fees continues to be much debated within the industry. Investor calls for more appropriate alignment of interests coupled with a difficult fundraising environment has led to shifts in the fee structures charged by fund managers. Single manager funds have cut management fees and these currently stand at 1.65% on average, but performance fees have been less affected by the market crisis (currently 18.89%). Investors that access hedge funds directly are happy to reward good performance, and are willing to pay high performance fees. This has paid off for most investors as the funds that charged the highest performance fees (i.e. 20%+) have produced the strongest returns during the difficult markets of the past two years. In the case of funds of funds, only the vehicles which charge performance fees of at least 20% produced positive 24 month returns.

There has been a move away from the traditional “2&20” structure for hedge fund fees, with just 38% of all funds having this structure in place. However negotiations between managers and investors on the terms associated with funds has occurred on both sides, and managers that have compromised on fees have often done so by including longer lock-ups for their funds. Single manager funds that charge a management fee of 1.5% have a mean lock-up of 7.3 months. Funds with a management fee of 2% have a mean lock-up of 5.4 months.

For more information and to download the report visit Hedge Fund Research Report

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