Latest research from Fitzrovia, a Lipper company, highlights significant variations in the way hedge funds\u00c3\u00af\u00c2\u00bf\u00c2\u00bd performance fees are structured.<\/p>\n
The research highlights the importance of assessing hedge fund fees beyond simply referring to the much used “2 and 20” * \u00c3\u00af\u00c2\u00bf\u00c2\u00bd both for their impact on returns and on fund company revenues. For example, around one third of alternative investment funds in the research charge a performance fee at a level other than 20% of net gains.<\/p>\n
18% of alternative investment funds in the research have a hurdle rate in place, whereby a performance fee will only be achieved once the manager has exceeded a risk-free rate (\u00c3\u00af\u00c2\u00bf\u00c2\u00bdhurdle\u00c3\u00af\u00c2\u00bf\u00c2\u00bd) of return.<\/p>\n
The research also reveals that 87% of alternative investment funds in the research use a High Water Mark. This aims to avoid volatility being unfairly rewarded by ensuring that shareholders do not pay performance fees on a recovery of performance to a previous high.<\/p>\n
At the same time, only 2% of alternative investment funds with a High Water Mark reset it after a defined period of time, while the vast majority choose to make it ‘permanent’. In Fitzrovia\u00c3\u00af\u00c2\u00bf\u00c2\u00bds view, it could be to the benefit of both managers and investors if this mark was reset after a period of one to three years.<\/p>\n
Use of this latest research should help hedge funds to take a more pro-active approach to their fiduciary responsibilities and to address criticisms of their fee structures, sometimes referred to as \u00c3\u00af\u00c2\u00bf\u00c2\u00bdheads I win, tails you lose\u00c3\u00af\u00c2\u00bf\u00c2\u00bd (for example, in a footnote in the SEC Staff report, \u00c3\u00af\u00c2\u00bf\u00c2\u00bdImplications of the Growth of Hedge Funds\u00c3\u00af\u00c2\u00bf\u00c2\u00bd).<\/p>\n
Fitzrovia\u00c3\u00af\u00c2\u00bf\u00c2\u00bds report \u00c3\u00af\u00c2\u00bf\u00c2\u00bdBenchmarking Performance Fees\u00c3\u00af\u00c2\u00bf\u00c2\u00bd analyses the performance fee structures of 2,422 funds, of which 393 are alternative investment funds.<\/p>\n","protected":false},"excerpt":{"rendered":"
Latest research from Fitzrovia, a Lipper company, highlights significant variations in the way hedge funds\u00c3\u00af\u00c2\u00bf\u00c2\u00bd performance fees are structured. The research highlights the importance of assessing hedge fund fees beyond simply referring to the much used “2 and 20” * […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-2935","post","type-post","status-publish","format-standard","hentry","category-hedgeco-news"],"_links":{"self":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts\/2935","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/comments?post=2935"}],"version-history":[{"count":0,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/posts\/2935\/revisions"}],"wp:attachment":[{"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/media?parent=2935"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/categories?post=2935"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/hedgeco.net\/news\/wp-json\/wp\/v2\/tags?post=2935"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}