The traditional management fee for hedge funds has long stood at 2% of the fund’s net asset value each year. However a new study by Preqin, a hedge fund data provider, has shown that the mean management fee is only 1.63%, significantly lower than the industry standard.
The survey of around 300 hedge funds, covering all strategies, also found that the mean performance fee was only 17.21%, once again less that the industry standard of 20%.
According to Amy Bensted, Manager, Hedge Fund Products, Preqin: It is clear that the idea of the 2 and 20 structure as the industry standard is becoming outdated. Fees which for years have conformed to the industry standard of 2 and 20 are now being driven down as investors become more powerful in the manager/client relationship. U.S. pension funds such as CalPERS and Utah Retirement System have been vocal in their belief that the hedge fund remittance structure needs to evolve and managers in response to these demands and those of other institutional investors are changing their fee structures.
However, before managers are seen hawking their wares on the streets of Greenwich and Mayfair, seven in 10 hedge funds still maintain a performance fee of 20%, highlighting that investors are still willing to pay the price in the search for alpha.
The survey also found significant outliers, with one hedge fund reporting no management fees at all. At the other end of the spectrum, one specialised CTA fund had a management fee of 7.5%. The scale of performance fees also varied widely. One CTA fund had a performance fee of 33%, whereas several fund-of-hedge funds had no performance fee at all.
Distressed debt, event driven and special situation funds are still commanding the highest fees. European funds are also charging higher fees that their U.S. counterparts.
The survey can be found here.
Giles TurnerNews Editor