A Barclays note to clients recently explained that the fees for multi-manager hedge funds can be approximately three times the size of their peers, due to the fact that these funds dependably yield high returns.
The note indicated that while in the last five years the larger market has averaged a return of 5.5%, multi-manager hedge funds have averaged a return of 8.3%. Investors are, therefore, asked to pay a higher fee because they are very likely to receive a higher return. There are no fixed fees, rather the fees can rise and fall depending on the work of the traders.
Generally, hedge funds have a fixed cost fee of 2%, with the fund owners taking 20% of the after cost profits. In multi-manager funds, the traders working at the fund receive bonuses, which are included in the hedge fund’s cost. This contributes to the higher cost, bringing multi-manager funds closer to a 7-and-20 charge instead of the usual 2-and-20.
According to Reuters, Barclays identified 42 multi-manager hedge funds managing a total of $290 billion in assets, including some of the world’s largest hedge funds.
Investors must pay performance related expenses even if the fund is not successful. They continue to pursue these funds, however, because of the consistently high returns which defray the increased costs.
Brian Marshall, former managing director at Barclays Plc was hired by Golden Tree Asset Management for business development focused on structured products.
Marshall will be joining the firm in New York, and will answer to Thomas Humphrey, the head of Golden Tree’s business development. The firm manages about $18 billion in assets.
“His experience and long track record of success in capital markets and investment banking reflects our continued commitment to grow our business and attract the best people,” Humphrey said of Marshall.
Ajay Nagpal, head of Barclays prime brokering business is moving over to Millenium, a leading hedge fund lead by Israel “Izzy” Englander.
Mr. Nagpal’s action is the most recent move in what appears to be a trend of powerful Wall Street banking executives switching over to work in hedge fund firms. This could be seen as a sign of where the power will be based in the world of finance in the near future.
Hedge funds have been seen as a haven for banking exec since the onset of the financial crisis. Changes in regulations in the world of investment banking have severely restricted banks from trading with their own capital, forcing banks to hold in reserve more of their capital as a safety net against risky actions. In response banks have had to reduce the size of the bonuses their executives receive at the end of the year.
No replacement has yet been announced for Mr. Nagpal at Barclays, while the arrival of Nagpal at Millenium has forced some shifting around of responsibilities. Millenium has an unusual corporate structure as a multi-strategy hedge fund with a large number of different investment teams. Its head, Mr. Englander is therefore freed from day to day responsibilities at the firm.
Nagpal will take over as the chief operating officer, the job that co-president Terry Feeney had. Feeney will become the only president. David Nolan, current co-president and chief risk officer, will become a vice-chairman in partnership with Simon Lorne, general counsel.