Preqin: Hedge Fund Managers Becoming More Flexible On Fees

Mar 22 2017 | 10:33pm ET

Managers view investor demands over fees as a key driver of change this year, while three-quarters of them are prepared to lower their rates, according to new research published by industry data provider Preqin.

Although largely true at any moment, a challenging 2016 for many hedge fund managers means performance and fees are the key areas that will influence the industry in the year ahead, Preqin said in a statement.

Preqin, which surveyed 276 hedge fund managers late last year for the poll, found that hedge fund managers are responding to high-profile redemptions and allocation changes with changes to fee structures. A full three-quarters of those polled are willing to reduce their fees, and many intend to spend more on marketing in the year ahead in an effort to counter broad investor skepticism about the value of investing in hedge funds. 

Other key highlights from Preqin’s research, which was compiled in the company’s Hedge Fund Manager Outlook: 

  • Performance and investor demands for more favorable fees were cited by 73% and 64% of fund managers, respectively, as key drivers of change facing the industry in 2017. 

  • This compares with 2016 figures of 33% and 28%, respectively, a sign that concerns are growing in light of an increasingly cautious investor base. 

  • 47% of fund managers said it was harder to raise capital in 2016 compared to 2015, and 36% said that it was harder to retain assets. 

  • Net investor redemptions from hedge funds accelerated through the year, despite the industry returning its best performance year since 2013. Many investors cited performance and fees as reasons for reducing their investments. 

  • Hedge fund fees are on a downward trend: average management fees dropped to 1.51% among funds incepted in 2016, down from 1.57% in 2014 and 2015. 

  • Ten percent of managers said they are prepared to reduce performance fees, 37% would reduce their management fees, and 27% are open to reducing both. In contrast, 26% of managers said they were not prepared to reduce their fees.
  • While 55% of institutional investors believe management fees improved over 2016, more than three-quarters (76%) believe that the area needs further improvement over 2017. 

“Investor dissatisfaction shows no signs of abating in early 2017, and it is clear that addressing investor pressure around performance and fees will be the key challenge for hedge fund managers in the year ahead,” said Amy Bensted, Head of Hedge Fund Products for Preqin. “Managers will be looking to build on high returns to restore confidence in the asset class as a whole, revive investor sentiment and begin reversing the trend of outflows from hedge funds.”

“However, improved performance alone [will not be] enough to assuage investor concerns that hedge funds are not offering them sufficient value on their investments,” Benstead added. “Investors have also indicated that they want to see further reductions of hedge fund fees, and it seems as though managers are increasingly looking to provide them.” 

Founded in 2003, Preqin is a leading source of information for the alternative assets industry, providing data and analysis via online databases, publications and bespoke data requests. More than 40,000 professionals in 90 nations use the company’s products.

In Depth

PAAMCO: Will Inflation Deflate the Asset Bubble?

Jan 30 2018 | 9:49pm ET

As the U.S. shifts from monetary stimulus to fiscal stimulus, market pricing should...


CFA Institute To Add Computer Science To Exam Curriculum

May 24 2017 | 9:25pm ET

Starting in 2019, financial industry executives sitting for the coveted Chartered...

Guest Contributor

Boost Hedge Fund Marketing ROI By Raising Your ROO

Feb 14 2018 | 9:57pm ET

Tasked with delivering returns on client capital, a common dilemma for many alternative...