Bloomberg – Hedge funds earned a record $16 billion in fees last year as the returns on investment dwindled to almost half of the average a decade ago.
The loosely regulated $1.1 trillion industry increased management fees to 1.44 percent of assets from 1.27 percent five years ago, data compiled by Chicago-based Hedge Fund Research Inc. show. The number of funds has doubled since 2001 to 8,500. The fees don’t include additional performance payments, which averaged 19.2 percent of hedge funds’ profits in 2005.
“Now people are charging much fancier fees, and they don’t make the same demands on themselves,” said Michael Steinhardt, 65, who closed his hedge fund in 1995 after 28 years in the business. “I was always anxious that my fees were egregious and that I had to have the best performance in the world to justify them,” said Steinhardt, who charged his clients a 1 percent fee, plus 20 percent of the profits.
Rising fees are unusual in a mature industry. Managers of U.S. stock mutual funds reduced their fees by 6 percent in the past two years, according to Chicago-based Morningstar Inc., an industry research firm. By contrast, hedge fund fees rose 13 percent in a five-year stretch when industry assets more than doubled and more than 4,600 new funds opened, Hedge Fund Research reported.
