Average Hedge Fund Fee Significantly Lower Than Reported

Hedge fund industry assets are up slightly from their peak in the 3rd quarter of 2008; however the average fee paid on industry assets has declined much more than reported in industry surveys. These surveys typically show that the stated fee of the average hedge fund has declined very little over the past five years. However we estimate that the average management fee on net assets received by hedge funds since 2008 is 15% lower than commonly believed. The hedge fund industry is seeing significant fee pressure from many hedge fund investor channels. These include: managed account platforms, ‘40 Act funds, UCITS, hedge fund seeding and acceleration companies, first loss investors, founders share investors and large institutional investors. These various channels have attracted a majority of hedge fund flows since 2008 and represent a growing percentage of the hedge fund industry. These investors can be grouped into three different categories which will be discussed below.