Guest Contributor

Annus Horribilis For Hedge Funds Illustrates Benefits Of Performance-Based Fees

Oct 2 2008 | 7:06am ET

By Christopher Holt -- Cynics often describe hedge funds not as a unique asset class or investment strategy, but as a unique “fee structure.“ To some extent, they are correct.

After all, mutual funds now use hedge fund strategies (long/short, 130/30 etc.) and yet we still call them mutual funds. Conversely, many hedge funds pursue high-beta long bias (a.k.a. mutual fund) strategies, yet we still refer to them as hedge funds.  And indeed, one of the main regulatory differences between the two types of funds is the ability to charge a performance fee.

Hedge fund fees are generally viewed by the media with a jaundiced eye. Many people have expressed frustration that hedge fund fees don’t seem to budge -- even as hedge funds have been producing lackluster absolute returns.

Take 2008 for example. A recent study by Eurekahedge recently found that 90% of hedge funds are currently below their hurdle rates or high water marks and are therefore at risk of earning no performance fee this year. And that was only as of July 31. Continue Reading Article On AllAboutAlpha

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