Hedge Fund Fees
You might guess that with new hedge funds being started each week that this type of competition would bring down their fees right? Not yet. The first hedge fund was said to be started in the 1960s and ever since they have gained more popularity through the 70s, 80s and 90s the “2 and 20” fee structure has virtually remained the same. Now that there are officially at least 10,000 hedge funds and in reality probably closer to 20,000 in existence, why hasn’t this fee structure become more competitive?
One reason is It is considered by most accredited investors that a hedge fund’s services are a high quality service. As a result, you can bet that the fees will not drop because this service is in such high demand (net inflows for the first 9 months of 2007 totaled $101.1 billion, up 9% year-over-year). The largest most successful hedge funds are not desperate for assets so they can afford to hold their ground at higher fee levels sometimes charging a 3% management fee and 35% performance fee. Some financial advisers and institutional consultants see hedge funds on the same level as star attorneys or expert open heart surgeons, not many people are going to haggle over price with them. Many who are on board with the reason to use hedge funds or alternative investments in a portfolio make investment decisions bases on the people, price, process and philosophy much more than a difference of 50-100 basis points in fees. One last reason why fees haven't moved much is when hedge funds lower their fees, this can sometimes be interpreted as a sign that the group is having problems, such as raising capital.
The one place where fees are starting to creep down is hedge fund of funds. There are so many of them in the market that all claim to provide that hard to get access to "closed managers" that some have reduced their overlay fees to attract new family office and retail channel clients. While I believe this trend will continue the large players probably won't come down much in 2008/2009.
- Richard Wilson & John Lee
Additional Resources Related to Hedge Fund Fees:
- What is a Hedge Fund?
- Prime Brokerage
- Accredited Investor
- Asset Allocation Diversification
- Prime Broker Definition
- Emerging Markets Hedge Funds
- Hedge Fund Administrators
- Large Accredited Investors
- Hedge Fund Leverage
- Hedge Fund Investors
- Hedge Fund Research
- Diversified Investment Advisors
- Distressed Debt Securities
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Related Terms: Hedge Fund Fees, Hedge Fund Feel Levels, Hedge Fund Fees Trend, Hedge Fund of Fund Fees, Fof fees, fund of fund fees, Hedge Fund Fee Concessions, Average Fees of Hedge Funds, Typical Hedge Fund Fees