Hedge Fund Fees Falling as Investors Vote with Their Feet

November 16, 2016 James Heinsman Hedge Fund News

This has certainly been a tough year for hedge funds. Low returns married to high fees have set off alarms as clients re-evaluate the cost-benefits of sticking with alternative fund managers.

In response, some of the largest hedge funds have lowered their fees as added incentive to keep their customers in the fold. Brevan Howard, Tudor Investment Corp, Och-Ziff and Caxton Associates reduced their rates this year in hopes of retaining clients.

The average management fee, which has traditionally been 2 percent, fell from 1.45 in 2015 to 1.35 in 2016.

“Investors are demanding more and paying less. Adapt or lose out,” said one pension fund manager.

Yet some believe the fees are still too high. According to surveys, only about 1 out of 5 investors are happy with the amount they pay to their hedge funds. They would like to see improved performance in return for the fees that they pay. This year the average return for hedge funds was 3.7 percent. Subtract 1.35 percent, and not much gravy is left.

n the other hand, investors are basically satisfied with the 20 percent fee most funds charge on their profits, since that fee only kicks in after the funds reach or surpass profit targets.

Almost half of the investors that took part in the survey said they were most likely going to move their money away from hedge funds and put it into private equity, real estate, or other strategies. Investors who plan to stick with their hedge funds are looking to have separate accounts in order for them to have more control over their money and how it is traded.

Brevan Howard, Caxton Associates, fees, Och-Ziff, Tudor Investment Corp.,

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