Hedge funds cut fees – but not enough to make investors happy


Hedge funds globally lowered their management fees from 1.45% on average in 2015 to 1.35% on average in 2016, EY said.

But despite the lower fees, just one fifth of investors are satisfied with the fees their hedge fund managers charge, according to the survey of 100 hedge fund managers and 63 investors by the consultancy firm.

Hedge funds have been under pressure from investors to lower their fees – traditionally a 2% management fee and 20% slice of trading profits – due to lacklustre performance across a wide range of strategies.

Hedge funds in the Lyxor Hedge Fund Index, which aggregates funds across different strategies, lost 2.2% in the year to November 8.

The EY report said that “pressure on fees is not likely to let up” given the poor performance of many hedge funds, the growth of lower cost passive products and investors willingness to trade their own money.

One area of potential growth for hedge funds is customised vehicles and segregated accounts, with the survey finding that more than 40% of investors are looking to move money from traditional hedge funds into these types of vehicles.

Devarshi Saksena, a partner at law firm Simmons & Simmons, said that many managers were tweaking fee arrangements, including lowering management fees and changing performance fees, as well as offering customised accounts, to lure investors.

Saksena said: “I think there is definitely pressure on managers to focus on the types of management fees they are charging.

“I think fees are one thing but the bigger conversation is around performance. Investors don’t mind paying for performance and alpha. Why is it that certain managers have struggled? There is a more fundamental question there.”

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