Hedge Funds Regain Power

Hedge Funds Regain Power in Negotiating with Investors

Continuing with the debate over hedge fund fees and negotiating terms with investors, hedge funds now appear to be "flexing their muscles" with investors.  Hedge funds are riding solid returns and a big rise in interest from investors, so managers are less likely to compromise.  A larger investor pool means that managers can turn away clients that demand greater transparency, lower fees and better terms.

Investors got used to holding the whip hand during the credit crisis as hedge funds had to hand back hundreds of billions of dollars to clients, leaving managers desperate for assets and in a weaker position to haggle on fees.

However, investors are now finding many funds have both healthier-looking client lists after last year's 20-percent returns and long memories when it comes to which investors deserted them during the tough times.

Downward pressure on hedge funds' lucrative fees has evaporated, executives say, and they look unlikely to fall further now that demand and performance have picked up.

The well-known structure of 2 percent annual management fees and 20 percent performance fees, commonplace before the financial crisis, has come under pressure as investors pulled out $330 billion in the year to June 2009, according to Hedge Fund Research HFR.L.

This has helped force down management fees to 1.5 percent, although performance fees are still around 20 percent, according to hedge fund executives and median figures from data group Preqin.  Source

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