Surveys Suggest Broad Industry Willingness To Negotiate On Hedge Fund Fees

Feb 28 2017 | 10:38pm ET

Investor pressure on the hedge fund industry for its high fees and often disappointing returns may be having an impact. 

Two global alternative investment manager surveys show a broad industry trend towards negotiated fee structures, according to Reuters article citing a joint HFM/Citco Fund Services study and a poll from financial services giant Barclays. 

Hedge funds have traditionally charged an annual management fee of 2% and a 20% cut of any profits they generate, often above a certain benchmark return. However, data from Preqin last year suggests the industry is heading towards averages of 1.5% and 19%, respectively.

In the HFM/Citico survey, which reportedly polled 225 global managers last fall, 72% of respondents (78% in the U.S.) said new fee structures are being negotiated in order to attract new capital at a time when raising money is notoriously difficult for most hedge funds. Managers willing to innovate in terms of their fees may find investors far more willing to devote capital to them than otherwise, the study suggests. 

Responses were similar in the Barclay’s poll, where 75% of 350 investors also surveyed last fall said they were seeing more willingness by managers to negotiate on fees. Interestingly, this willingness appears most pronounced among long/short equity managers, whereas computer-driven quant funds are showing the least adaptability to lower fees, the article said. 

Lastly, the two polls also show managers are most willing to discuss lower fee arrangements when investors agree to lock up capital for longer periods, or commit to higher allocations. While not necessarily a wholly new development, the surveys suggest investors, especially pension funds, have gained clout in recent years as capital raising has become more difficult.  

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