Hedge Funds Lower Fees to Lure Investors

February 19, 2018 James Heinsman Hedge Fund News

Since the financial downturn of 2007-2008 hedge funds have been under increasing pressure to keep their clients. In 2016 disgruntled investors pulled $70 billion out of hedge funds in response to poor past performance exacerbated by immodest fees.

The average management fee paid for a hedge fund investment fell to 1.56 percent in 2017 and the average performance fee shrunk to 17.3 percent. The trend of falling fees sped up in 2014, dropping an average of .13 percent for management and .78 percent for performance.

Before the crisis the fee structure for hedge funds was almost universally the famed “two and 20,” standing for 2 percent management charge and a whopping 20 percent for performance. Although many hedge funds are lowering that formula, there are still others holding on.

Lowering fees seems to be having an affect on winning back investors. In 2017 hedge funds acquired $9.8 billion in new money, helping to bring industry wide managed assets to a record high of $3.2 trillion by the end of the year.

Multi-strategy hedge funds are still more expensive that other strategies which are less work intensive, while customized fees structures are also a possibility at some firms. In some cases managers will agree to lower fees if assets grow, or if they agree to keep their money invested for a longer time frame.

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