Hedge funds: Where are my fees?
Wealth Bulletin: Fee slump hits hedge funds
Just one in 10 hedge funds is currently receiving performance fees from their funds, raising questions about whether their business model is robust enough to survive the current downturn. Nine out of every 10 of the 4,000 hedge funds surveyed globally by data provider Eurekahedge are performing insufficiently well to beat their “high-water mark” – the level at which they can charge performance fees, equivalent to a fifth of returns.
Hedge funds normally use money from their incentive fee to cover bonuses and one-off expenses. The money from their management fee, normally between 1.5% and 2% of their assets, usually covers the day-to-day running of their business.
Managers beating their high-water mark might typically expect to collect an average of 2% of their total assets via their performance fee.
Data provider Hedge Fund Research found 350 hedge funds were shut in the first half of this year, 15% more than the first half of last year, and setting the industry on course to beat last year’s 563 closures.
Tough times indeed. Still, much more preferable over long-only non-incentivized mutual funds.
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