WEST PALM BEACH, FL (www.hedgeco.net) – Panelists at a hedge fund industry conference in Switzerland have concluded that fees charged by hedge fund managers will likely go down when investor realizethat part of the returns hedge fund achieve are not based on the manager�s skills. The panelist said that when investors realize that they could achieve similar returns by investing in hedge fundindexes, many may begin investing in such indexes, forcing hedge fund managers to reduce their fees.

While the panelist said the average returns from a sector or beta could be distinguished from alpha which is the returns achieved by hedge fund managers, some hedge fund indexes could also produce returns similar to the ones posted by hedge fund managers. When hedge fund investors realize that the difference between the two are not significant more investors may change to index investing thereby forcing hedge fund managers to cut fees.

Kevin Pilarski, director of alternative strategies and derivatives at Dow Jones Indexes, said, “Research is getting to the point where we can work out what it is investors are paying for,” he asked �Is it real alpha or wizardry?”. Most hedge fund managers generally charge about 1 or 2 percent for annual management fees and about 20 percent for performance fees.

Richard Ledgerwood, portfolio manager, alternative investments at the Ontario Teachers’ Pension Plan, said, �Fees will gravitate lower, we don’t want to pay for embedded beta�, he explained. The Panelists also remarked that hedge funds use different strategies for trading, and large managers have well diversified their portfolios particularly in the area of fund of funds.

John Levitt, head of product development at Gregoire Capital, said �”Fees have to be contingent on being able to source managers who can deliver alpha�. Hedge fund managers using relative value strategies generally employ mathematical models for trading and such models utilize less human input than for instance global macro strategies which largely rely on human input.

Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net

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