Hedge Fund Fees Need to Fall Further, Investor Survey Findsby
Two-and-20 fee structure under pressure amid poor returns
Investors see improvement in past year, Preqin survey finds
Hedge fund fees need to fall further according to an investor survey by Preqin Ltd., as the industry struggles to justify its 2-and-20 fee structure amid lackluster returns.
Seventy-three percent of institutional investors said management fees need to decline further over the next 12 months, according to the survey, released Friday. Fifty-four percent said performance fees need to fall.
Investors are becoming more critical of the $2.9 trillion industry as hedge funds, which charge among the highest money-manager fees, struggle to deliver market-beating returns. Hedge funds returned 2.8 percent this year through the end of August, following last year’s 1.6 percent gain, which was the lowest in four years, according to data provider Eurekahedge Pte.
Preqin reported earlier this year that 79 percent of investors surveyed said their portfolios had fallen short of expectations over the previous 12 months.
Hedge funds, which have traditionally charged an annual management fee of 2 percent of assets and a performance fee of 20 percent, have seen those fees decline to an average 1.57 percent and 19.3 percent respectively, according to the report.
Terms are swinging toward investors, the survey found, with 58 percent saying fund terms and conditions had changed in their favor over the past 12 months, compared with just 8 percent stating these had changed in favor of fund managers. Sixty-three percent noted an improvement in management fees and 32 percent observed improvements in the level of performance fees and how those are charged, the survey found.