Hedge funds are cutting their fees: surveys

BOSTON Investors disappointed by hedge funds’ poor returns and managers eager to pull in fresh money are seeing eye to eye: the industry’s once-hefty fees are being rolled back.

Two separate global surveys suggest that nearly three-quarters of investors and the same amount of managers have negotiated fee structures that have made the traditional fees a thing of the past. Typically, hedge funds have charged an annual management fee of 2 percent on assets plus a performance fee of 20 percent on gains earned by the funds.

The new surveys gave no figures on how far the cuts have gone. But last year, hedge fund research firm Preqin found that newer funds now charge a 1.5 percent management fee and a 19 percent performance fee.

A survey conducted by information group HFM and Citco Fund Services, which will be released on Wednesday, found that 72 percent of polled managers said they are introducing new fee structures to attract investors at a time when raising new money is increasingly difficult. The two groups surveyed 225 managers in September 2016.

In the United States, home to the bulk of the world’s hedge funds, the number is even higher with 78 percent of polled managers saying they are ready to negotiate on fees, underscoring their willingness to “innovate,” the survey said.

“The funds who can adapt their fees, liquidity and other offering terms to what investors want will put themselves in a strong position in 2017 and beyond,” said Greg Fenlon, head of alternative investor services at Citco Fund Services.

Similarly, three-quarters of the 350 investors surveyed by Barclays during the fourth quarter of 2016 reported seeing more flexibility on fees from managers. Barclays released its survey this week.

Managers who pick stocks were the most willing to cut fees. Those that lowered their fees the least in the last two years are so-called quant funds, which rely on computer programs to help with trading, along with multi-manager hedge funds and fixed-income relative value funds.

Pension funds were the most successful in pushing for preferential terms, the report found, noting they were able to secure almost double the concessions that their smaller rivals were able to secure. Many managers would agree to cut fees if the investors left their money in longer or gave the managers more money to manage, the survey found.

(Editing by Matthew Lewis)

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